Low Demand Trips Up Factories in July

Manufacturing

Source: http://www.flickr.com/photos/usnationalarchives/

The U.S. Census Bureau reported Friday morning that total new orders for manufactured goods decreased 2.4 percent on the month in July to $485 billion. This is the first contraction in new orders in three months, but the decline was not as bad as the 3.4 percent contraction forecast by economists.

Excluding new orders for transportation equipment — which fluctuate seasonally and can add misleading volatility to the data — new orders increased 1.2 percent; this reflects a 19.4 percent decline in new orders for transportation equipment.

The Census Bureau’s report lags more timely manufacturing reports released by Markit and the Institute for Supply Management, which released data for August earlier in the week. The two reports showed that manufacturing activity has generally picked up over the past several months, led primarily by gains in new orders despite ongoing economic headwinds and policy uncertainty.

With this in mind, it may be fair to expect August factory order data — due to be released at the beginning of October — to come in strong.

The Census Bureau’s manufacturing report is broken down into four primary segments: new orders, shipments, unfilled orders, and inventories.

The new orders component is typically the headline citation and is arguably the best indicator of demand from the report. As mentioned, total new orders for manufactured goods fell 2.4 percent on the month but climbed 1.2 percent when the tremendous decline in new orders for transportation equipment has been factored out. Rises in new orders can foreshadow future increases in production.

Total shipments decreased 0.3 percent on the month, led by a 3.1 percent decline in shipments of computers and electronic devices. Unfilled orders increased 0.4 percent, led (interestingly enough) by a 0.9 percent increase in computers and electronic devices. Inventories continued to rise, climbing 0.3 percent and once again setting a record high at $378.9 billion.

Factory Orders

Source: Data from the U.S. Census Bureau

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