Why U.S. factory orders just dipped after four straight months of gains
Why U.S. factory orders just dipped after four straight months of gains
The Commerce Department reported Tuesday that factory orders for U.S.-manufactured goods dropped 2.1% in July, the first decline in four straight months.
Manufacturing is a part of the economy that has been relatively constrained this year as consumers have shifted some of their spending from stuff to travel and other services.
Orders for durable goods — those long-lasting big pieces of machinery like cars, appliances and factory equipment — are often looked to as a bellwether for consumer demand. And those fell by 5.2% in July. While it’s a pretty dramatic decline, there is a big caveat.
Factory order numbers are getting distorted by what is sort of the mother of all big expensive durable goods: commercial airplanes, said Sam Stovall, chief investment strategist at CFRA Research.
“And that is Boeing, because the Boeing orders fell to only 52 planes in July from a recent nine-year high of 304,” he said. “That is what really dragged down the overall factory order.”
Aircraft orders are pretty volatile. They have long lead times and high price tags, so economists tend to put them aside when trying to gauge manufacturing activity from factory order data, said Chris Varvares, co-head of U.S. Economics at S&P Global Market Intelligence.
“We want to look at durable goods orders excluding transportation,” he said.
Those actually grew in July by a modest 0.5%.
“So it illustrates the struggle that the manufacturing sector has faced in the past year or so: not declining, but not really increasing very much over this period,” Varvares said.
Another measure of manufacturing activity came out Friday: the Purchasing Managers’ Index from the Institute for Supply Management. The PMI showed the industry in contraction for the 10th-straight month, but Gene Goldman, Cetera Financial chief investment officer, said that it wasn’t slowing any further.
“We’re seeing, you know, manufacturing stabilizing at very low levels right now,” he said. “And I think that’s good news.”
Goldman added that other industries that took a hit this year, like housing, also appear to be leveling out. “A lot of the bad news we’ve seen in the economy is already starting to improve.”
There’s a sign of strength for manufacturing on the horizon: The backlog of unfilled factory orders increased again in July, meaning that future demand is already baked in.
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