Friday, October 2, 2009

Factory Orders

Released on 10/2/2009 10:00:00 AM For August, 2009
Prior Consensus Consensus Range Actual
Factory Orders - M/M change 1.3 % 1.0 % -0.8 % to 1.6 % -0.8 %

The manufacturing recovery is having a bumpy lift off. Manufacturing activity first moved higher in June then improved further in July but then dipped back in August. Factory orders for August fell 0.8 percent vs. a 1.4 percent rise in July (1.3 percent first reported) and vs. a 0.9 percent rise in June. August's data were pulled lower by durable goods, down 2.6 percent in the month (revised from an initial 2.4 percent). August orders for non-durable goods make their appearance with this report, up 0.8 percent and reflecting higher prices for oil & coal but not nearly enough to offset the drop in durable goods.

Weakness in durable goods is centered in transportation which is skewed not by motor vehicles, which despite cash-for-clunkers have been steady and which rose 2.0 percent in August, but have been skewed by aircraft where a huge jump in July made for a huge drop in August. Most categories outside of transportation also show month-to-month weakness. Capital goods readings fell back from big gains in July and point to trouble for export data in next week's international trade report. Consumer goods readings were mixed showing weakness for durable goods but strength for nondurables.

Among other data in the report, factory shipments fell 0.3 percent vs. a 0.3 percent rise in July. This particular reading raises the question whether the manufacturing sector actually did dip back into negative territory during August. Unfilled orders fell 0.4 percent while inventories fell 0.8 percent as manufacturers continued to keep costs down. But yesterday's ISM manufacturing report showed a pivotal slowing in the rate of inventory draw, pointing to a month-to-month gain for September inventories in what arguably would mark the end of the inventory correction. The outlook for the manufacturing sector is positive but uncertain as the sector's recovery is proving, as was expected, to be gradual not explosive.

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