Factory Orders: Sharp Decline, Mostly Old News

Bottom Line: Factory orders continued to fall sharply in April as the defense industry slowed dramatically, adding to woes from the near-complete shutdown in the auto industry for the novel coronavirus. While useful for tallying 2nd Quarter (-35 to -50% annualized by most estimates), these April data are mostly backward-looking as most manufacturing has restarted after the shutdowns. Still, the trend in factory orders was anemic even before the closures. Slower auto sales, Boeing's issues with their 737 Max, and trade policy uncertainty with China contributed to a steady increase in inventory-to-shipment ratios and marked slowdown in new order growth. Before the shutdown, trade policy started to become apparent but now appears less ceratin again as the US administration has publically criticized China's response to the virus outbreak, and China is rumored to have cut back on agricultural imports from the US. Overall, factory orders have likely rebounded sharply more than this lagged data suggested, but the trend will likely remain weak. Factory Orders FELL by 13.0% in April, compared with market expectations for a decline of 13.4%. The prior month's loss was revised lower from -10.3% to -11.0%. Durable goods orders declined by 17.2%, as previously reported, while nondurable goods orders slipped by 9.4%. Excluding orders for defense goods, civilian aircraft and petroleum products, (so called) core factory orders FELL by 11.9%. Factory orders are now 22.3% BELOW their year ago level but the year-over-year growth rate has declined moderately over the past year (from 0.8% a year ago to the current -22.3%). The April level is well below its Q1 average, after a modest decline in equipment spending in the Q1 GDP report.