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Economy in Brief

Weak Factory Orders and Shipments Data
by Gerald D. Cohen  July 3, 2019

Manufacturers' orders declined a greater-than-expected 0.7% (-1.2% year-on-year) in May following a slightly downwardly-revised 1.2% drop in April (was -0.8%). The Action Economics Forecast survey looked for a 0.5% decrease. Factory shipments edged up 0.1% (1.4% y/y) after contracting 0.6% in April (revised from -0.5%). Shipments of nondefense capital goods excluding aircraft, also known as core durable goods, which is one of the key inputs into nonresidential equipment investment in GDP, rose 0.6% in May (+4.0% y/y) and is currently growing at 1.5% annual rate for the quarter.

Orders in the volatile durable goods sector fell 1.3% (-2.8% y/y) after dropping 2.8% in April. This decline was driven by a 4.6% collapse in orders for transportation equipment (-8.4% y/y) as civilian aircraft orders plummeted 28.2% in May. While notoriously volatile on a monthly basis, these orders have fallen 56% over two months and 66% from a year ago. Total factory orders excluding transportation edged up 0.1% (0.4% y/y). Fabricated metal orders, the second largest category behind transportation, declined 0.3% in May (-0.4% y/y). This was offset by a 0.8% rise in machinery orders, the third largest category (0.3% y/y).

Shipments of durable goods grew 0.3% (2.4% y/y) with transportation increasing by the same amount (3.4% y/y). A 1.4% drop in civilian aircraft shipments (-26.0% y/y) was more than offset by a 0.5% gain in motor vehicles (9.5% y/y). Fabricated metal shipments increased 0.4% (2.6% y/y) and machinery rose 1.0% (2.5% y/y).

Nondurable goods shipments, which equal nondurable goods orders because nondurables are shipped in the same period they are ordered, decreased 0.2% (+0.4% y/y). This decrease was driven a 2.5% drop in shipments from petroleum refineries (-2.3% y/y). Energy prices, in particular oil prices, play a significant role on the value of energy product activity in this report. West Texas intermediate oil prices were down 4.7% in May (-5.2% after seasonal adjustment). Shipments for the largest nondurable category, food products declined 0.4% (-0.6% y/y), while basic chemicals the second largest by a hair, increased 0.9% (2.8% y/y).

Unfilled orders of durable goods, which as implied above equals unfilled factory orders, contracted 0.5% (+0.9% y/y) as transportation equipment backlogs fell 0.7% (+0.4% y/y). Excluding the transportation sector, unfilled orders decreased 0.2% (+1.9% y/y). Computer & electronic backlogs edged up 0.1% (3.3% y/y) while machinery was down 0.6% (-0.5% y/y).

Inventories of manufactured products rose 0.2% May (3.6% y/y) as durable goods inventories–which are roughly 60% of total inventories–grew 0.5% (5.0% y/y). Transportation increased 1.6% (6.9% y/y). Inventories outside of transportation edged down 0.1% (+2.8% y/y) with fabricated metals decreasing by the same amount (+4.0% y/y). Meanwhile, the machinery sector inventories swelled by 0.2% (5.7% y/y). Nondurable goods inventories declined 0.2% (+1.6% y/y) as petroleum refineries dropped 1.9% (-0.6% y/y) and food ticked down 0.1% (-1.1% y/y). Basic chemical inventories increased 0.1% (2.6% y/y).

All these factory sector figures and West Texas intermediate oil prices are available in Haver's USECON database.

Factory Sector (% chg) - NAICS Classification May Apr Mar May Y/Y 2018 2017 2016
New Orders -0.7 -1.2 1.3 -1.2 7.3 5.7 -2.9
Shipments 0.1 -0.6 0.2 1.4 6.9 5.0 -3.2
Unfilled Orders -0.5 -0.2 0.1 0.9 3.9 1.9 -1.1
Inventories 0.2 0.2 0.4 3.6 3.5 4.5 -0.7
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