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Thursday, December 03, 2015 11:47 AM

Factory Orders Bounce In-Line With Expectations; Autos Surprise to the Downside

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Factory orders bounced, nearly in-line with the Econoday consensus estimate of 1.4 percent. The actual rise was 1.5% percent.

Don't give too much praise to the economists for a correct guess because they had a durable goods advanced report last week as a guiding key. The overall results were a mixed bag, with some components rising others faltering.

Factory orders bounced sharply higher in October and, together with the bounce higher for manufacturing in the industrial production report, confirm what was a very solid month for the sector. Factory orders rose 1.5 percent in the month led by a 2.9 percent surge in durable goods orders (revised 1 tenth lower from last week's advance release). This gain offsets a no change result for non-durable goods orders.

Excluding transportation, and orders tied to the biennial Dubai airshow, new orders rose a less exciting 0.2 percent. But indications from core capital goods are very strong with new orders surging 1.3 percent on top of a 0.5 percent orders gain in September. Turning to capital goods industries, new orders for machinery jumped 1.2 percent with computer orders up 5.9 percent.

A negative in the report is a surprising 2.0 percent decline for vehicle orders, a disappointment that may very well be reversed in coming months based on the sustained and unusual strength of vehicle sales.

Looking at other readings, total shipments fell 0.5 percent in October which is not a good start to the fourth quarter with core capital goods shipments also down 0.5 percent. But future shipments are certain to benefit from October's orders gain. Inventories, which are widely seen as too high, did dip 0.1 percent but relative to shipments could do no more than hold steady at a ratio of 1.35. Unfilled orders are positive, ending two months of decline with a 0.3 percent gain.
New Orders and Shipments

The above chart helps with a much needed perspective on today's bounce. It could be a start, but it could be an outlier tied to the air transportation orders.

Reflections on Autos

Auto orders declined two percent which Bloomberg labeled "surprising".

Why is a decline so surprising given the "sustained and unusual strength of vehicle sales". Does Bloomberg expect "unusual strength" to continue forever?

Mike "Mish" Shedlock

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