Factory Orders

Factory orders unexpectedly rebounded in October, rising +.5% MoM (consensus unchanged), for the largest monthly gain since July. In addition, September's figure was revised higher to +.3% from the prior reported gain of +.2% MoM. Unfortunately, it appears that much of the increase is attributable to higher commodity prices rather than increasing volumes.

New orders for manufactured goods have now risen in four of the past five months. Excluding cars and airplanes, new order demand rose +.6% MoM in October. Shipments rose +1% MoM in October, and have now risen in three of the past four months. Unfilled orders continue their multiyear string of gains, rising +1% MoM, to another new record high. The unfilled orders to shipments ratio rose to 5.2 months on continued aircraft backlogs. Unfilled transportation equipment orders rose 1.1% MoM.

Durable goods orders fell -.2% MoM, creating a three month string of declines. But the pace of decline has eased from the 1.4% drop in September. Most of the weakness has been due to computers and electronic equipment, which fell -7.1% MoM in October. Durable goods shipments rose for the first time in three months, increasing by +.8% MoM, again primarily due to an increase of 2.2% MoM in computers and electronics.

Non-durable goods orders rose +1.3% MoM. Shipments of non-durable goods rose +1.3% MoM, to a record high, continuing a string of gains over the past six months. Chemical products led the increase. Petroleum shipments rose 1.8%. Since shipments are measured in dollars spent, most of the increase was probably due to higher prices.

Factory inventories rose +.1% MoM, down from the +.6% increase in September. The inventory to sales ratio declined to 1.23 months in October versus 1.24 months in September. Inventories of durable goods have been rising for three of the past four months, increasing a revised +.3% MoM in October, and are currently at record high levels. Inventories of non-durable goods fell -.3% MoM, with food products leading the decline.

The manufacturing sector remains under stress as a slowing economy causes companies to become more cautious on investment. There are also increasing indications that more companies are having trouble finding financing, which further reduces demand. The manufacturing ISM index now stands at a ten month low.