Factory Orders: Rebound in September; Inventory/Shipment Ratio Falling

November 3, 2016
Bottom Line: Factory orders increased slightly in September for the third consecutive month. After nearly two years of year-on-year declines, the 12-month annual rate of change is now in positive territory. The inventory to shipment ratio is now steadily falling, hitting a level not seen since December '14. While the report confirmed the negative impact on 3Q GDP from the declines in nondefense capital goods shipments relative to 2Q, the trend in inventory to shipment ratios portends well for further gains in new orders in coming months. Factory Orders ROSE by 0.3% in September, compared with market expectations for an increase of 0.2%. The prior month's gain was revised higher from 0.2% to 0.4%. Durable goods orders declined by 0.3%, as previously reported, while nondurable goods orders jumped by 0.9%. Excluding orders for defense goods, civilian aircraft and petroleum products, (so called) core factory orders ROSE by 0.2%. Factory orders are now 0.6% ABOVE their year ago level but the year-over-year growth rate has rose moderately over the past year (from -7.8% a year ago to the current 0.6%). The Q3 average for nondefense capital goods shipments is modestly below its Q2 level, compared with a slight decline in equipment spending that was reported in the advance Q3 GDP report.