Tuesday, March 6, 2007

Factory Orders Drop Big

From the Census Bureau

New orders for manufactured goods in January, down following two consecutive monthly increases, decreased $22.9 billion or 5.6 percent to $383.1 billion, the U.S. Census Bureau reported today. This followed a 2.6 percent December increase.
Shipments, down following three consecutive monthly increases, decreased $4.6 billion or 1.2 percent to $391.2 billion. This followed a 1.3 percent December increase.

Unfilled orders, up twenty of the last twenty-one months, increased $0.6 billion or 0.1 percent to $695.2 billion. This was at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 2.3 percent December increase. The unfilled orders-to-shipments ratio was 4.78, up from 4.71 in December. Inventories, down following ten consecutive monthly increases, decreased $0.9 billion or 0.2 percent to $482.0 billion. This followed a 0.2 percent December increase. The inventories-to-shipments ratio was 1.23, up from 1.22 in December.

Let's break this number down.

The following numbers are the seasonally-adjusted numbers.

The overall new orders number was down 7.8%. But Boeing transportation orders can make this number incredibly noisy. However, even without transportation orders, this number was still down 3.1%.

The 9.6% drop in unfilled manufacturing orders indicates back-orders are getting cleared out. That makes the drop in new orders that much more important as it appears manufacturers are clearing out their old orders and will have fewer orders going forward.

There was a 9.3% drop in new machinery orders and a 7.8% drop in new computer and electronic products orders. This means that capital spending plans may be dropping in the business sector.

Here's how Bloomberg reported the number:

Orders placed with U.S. factories declined by the most in more than six years in January on lower demand for aircraft, computers and construction machinery.

Factory orders fell 5.6 percent after a 2.6 percent increase in December that was larger than previously reported, the Commerce Department said today in Washington. Excluding transportation equipment such as Boeing Co. jets, bookings fell 2.9 percent, the biggest decline since September.

Business spending on new equipment fell by the most in more than five years as declines in the auto and construction industries took a toll on manufacturing. Weaker corporate investment, together with continued efforts to reduce bloated stockpiles, are likely to be a drag on growth this quarter, economists said.

``Manufacturing had a tough January as the inventory adjustment grinds on,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Capital spending is off to a weak start in the first quarter.''