Factory orders rise in July

Factory orders rose 0.1% in July, about in line with forecasts. Durable goods orders saw a slight upward revision to 0.4% from 0.3% in July, while nondurable goods orders were unchanged in the month.

BOTTOM LINE

This report has, in a sense, already been superseded by the more up-to-date (and more upbeat) ISM report for manufacturing activity. However, there is a divergence between the recent data on orders from the ISM (continued but moderating growth) and this report (factory orders falling at an annualized rate of 8.8% over the last three months). Part of the discrepancy is likely related to the factory orders data being in current dollars (i.e., not adjusted for price changes) since factory orders fell $9.6 billion from April to June as shipments of petroleum and coal products sank by $7.0 billion (and the average price of WTI crude dropped 9.6% over the same period). However, even adjusting for this, the ISM report paints a more upbeat picture of manufacturing than the factory orders data. Our view is that manufacturing is adjusting to the shift in the inventory cycle that gave a very significant thrust to manufacturing orders and activity earlier in the recovery and that the sector will expand at a solid but slower rate than it has done over the last year.

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