Factory Orders Unexpectedly Edged Up in January

Female employees working on shell casings at a Vickers Ltd munitions factory, UK, circa 1915. (Photo by Hulton Archive/Getty Images)
Hulton Archive/Getty Images

New orders for U.S.-made goods unexpectedly rose in January, boosted by orders for aicraft, vehicles, and capital goods, the Commerce Department said on Tuesday.

Factory goods orders notched up 0.1 percent in January from December, the second consecutive month of gains. Economists polled by Econoday had forecast orders to be flat for the month.

Aircraft orders are a volatile category that can bounce around a lot month to month because individual orders tend to be large and intermittent. Non-defense aircraft orders were up 15.6 percent, following Decembers 35.7 percent rise and November’s 4.5 percent gain. Defense aircraft orders rose 3.4 percent.

Motor vehicle orders were up 0.4 percent, the second consecutive monthly gain. That was unexpected.

Orders for durable goods rose 0.3 percent, the third straight month of gains. Capital goods orders, which exclude defense and aircraft spending, jumped 0.8 percent. Shipments also rose 0.8 percent, a promising sign that businesses have continued to invest despite stock market volatility and recession fears that dominated the public conversation about the economy in the months prior to the start of the year.

Construction machinery orders rose 4.2 percent, another sign that the housing market may be moving out of last year’s doldrums. Industrial machinery orders soared 14.9 percent, a much needed reversal from sharp declines in November and December. Mining and drilling machinery orders fell for the second consecutive month, likely reflecting recent declines in the prices of oil and natural gas.

Orders for computers were up 5.8 percent, although the broader electronics category saw orders drop by nearly a percentage point.

Unfilled orders rose 0.1 percent in January, a small rebound after these dropped for three straight months. That likely indicates we will not see a big increase in factory orders in the next few months. And inventories jumped 0.5 percent, an unexpected and unwelcome build that could lower production in the first quarter.

The Federal Reserve will likely take note at the slow growth of orders at the two-day meeting of its monetary policy arm that began Tuesday. This is not a report that indicates an economy in need of higher interest rates to prevent overheating or inflation.

There are no real signs that metals tariffs are weighing on the factory sector. Although steel and aluminum orders dipped, the strength in durable goods indicates that pricing pressures have not hurt demand. The drop in steel and aluminum orders may actually reflect increases in U.S. productive capacity are bringing down metals prices.

Nonetheless, the factory sector has been showing indications of weakness recently. Last week’s Empire State manufacturing report indicated a sharp slowdown.  This Thursday, the Philadelphia Fed’s more established manufacturing index is expected to show a bit of a bounce back after its recent slump.

This report was for January. It was delayed by the partial shutdown of the federal government. As such, the data is a bit dated and generated less of a market reaction than it otherwise might have if it had been released on time.

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