Headline total factory orders matched expectations by decreasing 0.2% in November. On a three-month moving average basis, orders are now 0.1% higher, after a 0.5% fall in October. Meanwhile, orders excluding transportation fell by 0.3%. Excluding defence, orders were 1.0% lower, following a 1.4% rise. Nondefence capital goods orders excluding aircraft and parts (the favoured proxy for business investment) were 0.3% lower, after a 0.6% rise; these orders were 1.8% lower than one year ago.
Inventories fell for the fifth consecutive month, down 0.3%; they were also finally lower against shipments, which rose by 0.2%. The result is that the inventory-to-shipments ratio is still above the level most manufacturers would be comfortable with, but dipped slightly in the month. Unfilled orders were 0.2% higher. There continue to be large swings in transportation orders; civilian aircraft orders dropped by 22.2% in the month (following a 78.8% rise), while defence aircraft and parts offset this by rising 46.9%. The major other areas of strength included fabricated metal products, computers, and electrical equipment. Nondurable goods orders were 0.4% lower. Any weakness in the month was associated with primary metals and machinery.
This month's report highlights that the industrial sector of the economy continues to be under pressure from the strong dollar, the high level of inventories, weak commodity prices, and moderate global growth. While businesses have been investing at a modest rate, there seems to be an absence of a major catalyst to increase that rate of spending much in the near future, at least until the inventory-to-sales ratio declines and companies have adjusted to the dollar's strength. Certainly, that seemed to be the message from the most recent ISM manufacturing report earlier this week, which showed further weakness in the new orders and production indices. It is also possible that companies may use the election year and the uncertainty associated with it as an excuse for once again delaying investment until later in the year or into 2017. From the Fed's perspective, there is little here that is all that new; therefore, it is unlikely to change much of its current outlook.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.