Factory Orders for August 2010 - New Orders down, -0.5%, Core Capital Goods up 5.1%

The Manufacturers’ Shipments, Inventories and Orders for August 2010 was released today. This report is commonly referred to as Factory Orders in the press and refers to domestic manufactured goods, both durable and non-durable. Last week, the advance report on August manufactured durable goods was released, but this report revises those numbers. Durable Goods New Orders was revised from -1.3% to -1.5%. The real story is core capital goods new orders was revised upward by a full percentage point to 5.1% in a month. Core capital goods shipments were revised to 1.7% from 1.6%. Below is the monthly percent change, overall for durable goods new orders. This graph includes nondefense aircraft new orders.

 

Durable Goods

 

Core capital goods, was revised upward, to 5.1%. Look at this dramatic jump in monthly percent change in the graph below:

 

Core Capital Goods

 

Here is the U.S. Chamber of Commerce's definition of capital goods:

The Capital Goods Industries include Nondefense : small arms and ordnance; farm machinery and equipment; construction machinery; mining, oil, and gas field machinery; industrial machinery; vending, laundry, and other machinery; photographic equipment; metalworking machinery; turbines and generators; other power transmission equipment; pumps and compressors; material handling equipment; all other machinery; electronic computers; computer storage devices; other computer peripheral equipment; communications equipment; search and navigation equipment; electromedical, measuring, and control instruments; electrical equipment; other electrical equipment, appliances, and components; heavy duty trucks; aircraft; railroad rolling stock; ships and boats; office and institutional furniture; andmedical equipment and supplies.

What the press calls core capital goods is actually capital goods minus aircraft and defense. Capital goods are durable, so due to late receipts, we have a revision jump of 1% in a week. Capital goods are also called the means of production and this is the stuff used to make stuff, so having a jump like this is some refreshing good news.

Below is the breakdown in manufacturing data change, overall from last month. Bear in mind that aircraft dropped -40.2%. Nondefense aircraft and parts are a volatile number. Wow many businesses and governments order an airplane every month? Last month aircraft jumped 69.1%, so one must look past aircraft to the more stable, month to month manufacturing receipts to get a better view on manufacturing data as a whole.

  • New orders: -0.5%
    • Durable: -1.6%
    • Non-Durable: +0.3%
  • Shipments: -0.6%
    • Durable: -1.5%
    • Non-Durable: +0.3%
  • Unfilled orders: 0.0%
  • Inventories: +0.1%
    • Durable: +0.4%
    • Non-Durable: -0.3%

It's worthwhile to note computers new orders jumped 19.2% and non-defense communications equipment jumped 12.1%. Power/energy related equipment jumped 23.2% and gas field machinery (let's not blow up neighborhoods?) increased 18.7%.

For more details here is the website for manufacturing data.

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So who's buying these capital

So who's buying these capital goods? Given all the other statistics on the economy, it seems reasonable to conclude they are being exported. Also, where are the goods being manufactured? a large percentage of computer and communication equipment are manufactured in China. Does Apple's China made i-pads, pods, etc. show up in this report because Apple is a domestic company? If not, what companies are manufacturing computers at such a prodigious rate?
Intuitively, these numbers don't seem to correlate with jobs, consumption, etc. numbers.

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who is buying capital goods?

This report is limited to the (can you believe how low this number is?) 50,000 or so U.S. manufacturers. So, while I think there are serious problems with partial offshore outsourcing, i.e. parts are made offshore, engines are made offshore, and so on, the tally of this means these goods came from U.S. manufacturers.

These numbers would imply future jobs, for they are the means of production, but that's a very good question on something like an ipod.

As far as I know, but I will check this, the goods must be domestically sourced, at least partial.

But I do not know if things like ipods/ipads are counted and I do not think they should. Only the R&D was done onshore for Apple as far as I know, the manufacturing is done offshore.

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This report presents a lot of

This report presents a lot of positive result for home demand. Basically, my assessment of durable goods rises 5.6 percent. Durable goods are creating a new possibilities for manufacturer. I think that these positive numbers can rate as a economic prognosis.

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manufacturing has a long way to go

Overall it has been gutted, offshore outsourced. It's last way down to 9-12% of the total U.S. economy. That said, what we need is a new manufacturing policy which promotes, projects, increases the U.S. manufacturing base and this report, buried under the total numbers at least shows signs of life.

PCE, which I didn't get to, also increased 0.2%, which will increase Q3 GDP.

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