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Economy in Brief

by Bob Brusca U.S. Factory Orders Show Life Again June 4, 2007

Overall trends show unfilled orders are still under steady and strong growth. Orders are sharply accelerating. Shipments are picking up and inventories are flattening at a modest growth pace.

But in the current month the annual revisions on orders did soften. The durable goods order gain in April was reduced, but so was earlier weakness. On balance, durable goods are left on a firming track.

The table below eliminates some of the more volatile elements in durables to get at a measure I call core orders. It eliminates defense, private aircraft and petroleum and products. On this basis shipments are on the rebound, with a 3-month growth rate of 8.3%. New orders also are up over these three months by a strong 8.8%. Like shipments, orders have accelerated from a flat to slightly negative result over nine months. Unfilled core order growth is off sharply with a rise of 3.9% after having showed strong growth during the period in 2006 during which shipments and orders were weak. Core inventories fell in the recent three-month period as that inventory correction continues. Across industry groups sales are growing faster than inventories as a rule, in all but 15% of them. Orders and unfilled orders nonetheless showed increases across all main categories over three-months. Even though inventories are falling over three months for the core grouping they are still rising in more sectors that they are falling overall. Obviously, they are falling by greater magnitudes in those core industries where they are weak. Energy aircraft and defense are boosting the total as aircraft and petroleum stocks are up particularly sharply.

The sector seems to have turned a corner after a lethargic 2006 when an extended inventory cycle seems to have held back the sector. Meanwhile the inventory picture remains fluid.

Factory Orders: Excluding Defense and Petroleum & Private Air Crafts
Core Orders 3Mo 6Mo 9Mo 12Mo YearAgo
  Shipments 8.1% 2.6% 0.2% 1.2% 4.5%
  New Orders 8.8% 3.1% -0.2% 0.7% 5.5%
  Unfilled Orders 3.9% 7.7% 11.1% 11.7% 10.2%
  Inventories -2.8% 0.3% 3.3% 4.4% 5.0%
All Industries DIFFUSION by Sector
  3Mo 6Mo 9Mo 12Mo YearAgo
Non Durables Shipments diffusion 66.7 66.7 41.7 33.3 91.7
S>I Diffusion 66.7 75.0 33.3 41.7 33.3
AVG S-I Gap ('-"--> I>S) 1.2% 4.7% 1.2% -1.0% -0.5%
Diffusion of adverse Gap (m/m) 50.0 66.7 75.0 50.0 --
Durables diffusion          
  Shipments 71.4 71.4 71.4 71.4 100.0
  Orders 100.0 71.4 42.9 71.4 100.0
  Unfilled Orders 100.0 100.0 85.7 100.0 85.7
  Inventories 71.4 85.7 100.0 100.0 100.0
S>I Diffusion 85.7 57.1 28.6 14.3 57.1
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