November Factory Orders unexpectedly Surge Due to Higher Oil Pricesand Aircraft Orders

Factory orders rose +1.5% MoM (consensus +.5), much more thanexpected, and the largest monthly increase in four months. The gainwas primarily due to higher oil prices pushing up the value of refinedgoods. Demand for refined petroleum rose 16%, and pushed demand fornon-durable goods up 3% MoM, the largest increase in non-durable goodsin 2.5 years. Higher prices for agricultural products and metals alsoraised the value of non-durable goods orders. Demand for machineryactually fell, indicating slipping demand for durable goods andcapital investment. Durable good demand, which account for just over50% of total factory orders, fell -.1% MoM. This is an improvementfrom the -.5% MoM decline in durable goods order the prior month.Aircraft orders rose 21% MoM, pushing up transportation orders by+1.5% MoM. Excluding transportation, new factory orders rose +1.4%MoM in November. Excluding defense, factory goods orders rose +1.2%MoM. Unfilled orders rose +1% MoM, and have grown by 16.9% YoY.
Orders for non-defense capital goods excluding aircraft are used as anindicator for future business spending. This figure fell -.1% MoM inNovember, also an improvement from the 3% MoM decline in October.Shipment for this category rose +.2% MoM in November after falling-1.2% MoM the prior month. Non-defense capital goods excludingaircraft unfilled orders are up +9.5% YoY, while shipments have risen+1.5% YoY.
The outlook though is not good, as banks rein in credit, andmanufacturing ISM saw the largest monthly drop in five years duringDecember. Inventories also jumped +.8% MoM in November, the largestincrease in a year and a half, but the inventory to sales ratio easedto 1.22 months from 1.23 months in October. Inventory growth, whichhas grown +2.9% YoY, reduces future demand.
Over the past year, new factory orders have grown by +5.3% YoY, withex-transportation growing +7.5% YoY and ex-defense growing +6.8% YoY.Capital goods orders have declined by -1.4% YoY, while durable goodsorders have eased by a more moderate -.5% YoY. Transportationorders have fallen -5.7% YoY and computer orders have fallen -5.2%YoY.