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Factory Orders: Sharp Decline in Defense But Core Steady

March 6, 2018
Bottom Line: The manufacturing sector of the economy pulled back modestly in January after a strong 4Q17 and five straight monthly increases. The details were a bit better than the headline, which was dragged down by volatile defense orders. Shipments rose for the 13th time in the last 14 months. The core metrics most relevant to GDP suggest this sector should continue to add to GDP in the 1st Quarter. On a trend basis core orders are still accelerating moderately. And while inventories are rising, they are growing more slowly than shipments, a potential sign of more strength in the sector going forward.

Factory Orders FELL by 1.4% in January, compared with market expectations for an increase of 1.5%.
The prior month's gain was revised higher from 1.7% to 1.8%.

Durable goods orders declined by 3.6%, as previously reported, while nondurable goods orders jumped by 0.8%. Excluding orders for defense goods, civilian aircraft and petroleum products, (so called) core factory orders were nearly unchanged.

Factory orders are now 6.6% ABOVE their year ago level and the year-over-year growth rate has risen modestly over the past year (from 3.7% a year ago to the current 6.6%). The January level is slightly above its Q4 average, after a modest increase in equipment spending in the Q4 GDP report.