Factory Orders

Factory orders rose slightly more than expected in May at +.6% MoM (consensus +.5%). This represents the third straight month of growth in factory orders. In addition, April's figure was revised up to +1.3% from +1.1%. As expected, defense spending and airline orders were responsible for most of the increase. Defense spending rose +12% MoM, while transportation orders rose +2.5% and computers rose +2.9% MoM. Excluding transportation, which tends to volatile month-to-month, factory orders rose +.4% MoM and excluding defense they rose +.3% MoM. Capital goods orders rose +1.9%, though when defense and aircraft are excluded, they actually fell -.4% MoM. Non-durable goods orders rose +1.2% MoM, probably due to higher energy prices (orders for petroleum and coal products rose +4% MoM), while durable goods orders were flat in May. Non-durable goods orders had jumped up +3.5% MoM in April. Raw materials prices are running at a 29-year high. Shipments of factory orders rose only +.1% MoM, though non-defense capital goods excluding aircraft rose +.5% MoM (used for calculating GDP). The slowdown in shipments caused inventories to pop up again in May, rising +.5% MoM after being unchanged in April. Unfilled orders continued to climb, and are likely to remain elevated as Boeing works through production problems with their new 787 airliner. The inventory to shipments ratio eased slightly higher to 1.23 months of supply from 1.22 last month. This is still down from the 1.26 high seen in late winter. Over the past year, new factory orders have risen +5% YoY, with ex-transportation rising +7.4% and ex-defense rising +4.4% YoY. Capital goods orders have risen +3.5% YoYmainly due to rising defense spending (+22% YoY) to replace depleted equipment from the wars. Ex-defense capital goods orders have risen a more modest +1.5% YoY. Durable goods orders have fallen -1.5% YoY. Excluding transportation, durable goods orders have fallen -8.7% YoY. Shipments have risen +4.7% YoY, with the important non-defense capital goods excluding aircraft rising a slower +2% YoY. Inventories are up +6.1% YoY and unfilled orders have grown by +16% YoY as of May. If not for growing defense spending and rising energy prices, plus continued export demand, factory goods orders would not look as strong. Domestic businesses are continuing to cut back on spending for new equipment as credit tightens