Factory Orders for Nondefense Capital Goods New Orders (Excluding Aircraft) – Easy Trends (thru August 2015)
Factory orders reports provide insight into how busy our factories will be in the coming months. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for the factory orders report and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.
NOTE: You may be reading an outdated analysis. Please visit my latest factory orders trend analysis for more info.
What are factory orders for nondefense capital goods? From the USA Today / IHS Global Insight Economic Outlook Index (no longer published):
Key barometer of business owners’ confidence in the economy. Tracks how much business owners plan to invest in machinery, computers and other goods.
Why do investors care about factory orders for nondefense capital goods? Simple – it’s a leading indicator for the economy. Changes seen in the level of new orders will often mirror changes in the economy several months later. Why is it “excluding aircrafts” though? Factory orders for aircrafts come in bursts, so the ups and downs obscure our ability to see the underlying trend in the data. For that reason, we will subtract factory orders for aircraft out of the equation.
Here’s a graph of the Nondefense Capital Goods New Orders (Excluding Aircraft) from the Federal Reserve Bank of St. Louis for the past five years:
Source: StLouisFed.org
Factory Orders Trends and Projections
Below, I will discuss whether factory orders for nondefense capital goods (excluding aircraft) is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. I generally start my analysis from about three years ago.
Factory Orders Trend Analysis
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Quick ‘n Easy An indicator for how much business owners plan to invest in machinery, computers and other goods ended its downward trend as of May 2015. It is now in an unconfirmed upward trend of about 1.7 percent of the latest figure per month – a sizzling pace. The latest reading was understandably too low to include in that upward trend. Because it’s considered a leading indicator, that possible upward trend suggests we will see continued economic growth through the next six months or so after the latest date of the trend – which translates to early 2016. |
Source Data: U.S. Census Bureau
Current Trend: May – Jul 2015. During that time, there was an unconfirmed upward (good) trend in which orders were rising by about $1.17 billion per month, which is approximately 1.7 percent of the latest month’s figure. The current trend reflects an annualized increase of 22.2 percent – a sizzling pace of growth. Unfortunately, the latest reading was too low to include in the downward trend – not surprising as it’s nearly impossible to keep up that sizzling pace.
Last Confirmed Trend: Sep 2014 – May 2015. During that time, orders were falling by about $654 million per month, which is approximately 0.9 percent of the latest month’s figure.
Projected Next Data Point
The next report is for September 2015. If the latest trend (excluding off trend data points) extends perfectly, the September 2015 factory orders for nondefense capital goods (excluding aircraft) will be about $72.2 billion, which would be an increase of about 4.2 percent from the latest monthly figure. The projection is for a faster increase than the current trend because the latest figure was much lower than the trend line. I doubt we would see that much of an increase though.
Easy Take
The latest reading for August 2015 factory orders for nondefense capital goods (excluding aircraft) showed a sizable pull back, the largest monthly drop since February. But it was understandable given the sizzling pace of increase the last two months. Looking at the bigger picture, it’s important that the downward trend ended as of May, and we now have a possible rising trend! Because this is considered a leading indicator, it is very reassuring to see any kind of upward trend (confirmed or not).
