Factory Orders Advance 3.0 Percent On Aircraft and Autos

New orders for manufactured goods in February, up two of the last three months, increased $14.5 billion or 3.0 percent to $492.0 billion, the U.S. Census Bureau reported today. This was at the highest level since the series was first published in its current format in 1992 and followed a 1.0 percent January decrease. Economists had been expecting a 2.9 percent increase, and the January drop was smaller than its previously reported 2.0 percent decrease. A large portion of the strong headline gain was due to aircraft. Excluding transportation, new orders increased 0.3 percent. Transportation equipment, up two of the last three months, drove the increase, up $13.3 billion or 21.8 percent to $74.5 billion. This was primarily because non-defense aircraft orders, a large and volatile category, surged 95.1 percent on the month. Outside of transportation, growth was widespread in a number of different sectors, outside of power generation, non-defense communications and construction equipment. Each of these three areas saw double-digit declines in new orders. Of course, these are smaller categories and bounce around significantly from month to month. Oil drilling and energy equipment, on the other hand, advanced 21.2 percent, no doubt due to the ongoing petroleum and natural gas production in the U.S. based on new technologies such as fracking. Looking at broader industry groups, orders for autos and parts increased 3.8 percent. Orders for computers advanced 3.5 percent, while information technology (outside of computers) edged up 0.8 percent. Construction materials (different than construction equipment) fell 0.6 percent. Manufacturers must be expecting a stronger consumer, as consumer durable goods orders climbed 4.3 percent, while consumer non-durable goods increased 1.5 percent. Total consumer goods orders advanced 2.0 percent. These increases followed gains in January for consumer goods manufacturing orders. What are more stable are non-durable goods, for both consumers and business customers. Here, we see that new orders for manufactured non-durable goods increased $2.2 billion, or 0.8 percent, to $259.8 billion. In one sign that manufacturing may see continued production gains, unfilled orders for manufactured durable goods in February, up five of the last six months, increased $9.3 billion or 0.9 percent to $999.7 billion. This followed a flat reading in January and a 0.7 percent advance in December. Unfilled orders are a barometer of manufacturing capacity, and an increase in unfilled orders suggests that manufacturers may need to increase employment in coming months if they expect orders to continue to increase. On the other hand, tempering some of the potential growth in coming months, factory inventories rose 0.2 percent in February after a 0.6 percent gain the prior month, today's report showed. Manufacturers had enough goods on hand to last 1.27 months at the current sales pace, down from 1.28 in January. With that caveat on inventories in mind, employment in the sector may still increase. Yesterday, we did see that the Institute for Supply Management reported than manufacturing continued to expand, but at a slower pace than in the previous month, with a print of 51.3, though down from 54.2 in the prior month. Manufacturers, in that survey, did indicate that hiring levels might increase in coming months, as the Employment indicator in the ISM survey printed at 54.2, up from 52.6 in the prior month, with 24 percent of manufacturers reporting increased employment and 16 percent reporting decreased staffing levels. (Readings above “50” indicate expansion.) As such, manufacturing continues to expand, and the details of the report indicate manufacturing production may continue to grow in coming months, but with the caveat of higher inventory levels in some industries that may alleviate the need for substantial production increases.