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Factory Orders Drop, Investment Decline is Worse than Expected

Posted by Joseph Trevisani on Apr 4, 2016 5:21:36 PM

New business for America's factories fell in February and orders for durable goods and capital investment were much weaker than initially thought making an improvement in first and probably second quarter economic growth increasingly far-fetched.

Factory orders fell 1.7 percent in February, as predicted, reported the Commerce Department on Monday. It was the 13th decline in the last 18 months. Orders outside the volatile transportation sector slipped 0.8 percent, worse than the -0.5 percent forecast. 

Annual factory orders dropped 3.0 percent in February, the 16th straight month that new business to U.S. factories has declined.  It is the longest negative run without a recession in the 60 year history of this series. 

In a troubling development for a U.S economy that expanded just 1.4 percent annually in the fourth quarter of 2015 and is estimated by the Atlanta Fed to be tracking at 0.7 percent currently, the January results for both categories of factory orders were revised sharply lower.  

Factory orders in January were adjusted down to 1.2 percent from the original 1.6 percent and the ex-transport number sank to -0.6 percent from -0.2 percent. 

Durable goods orders, a sub-category of the overall manufactured output for items designed to last at least three years, were revised lower in February. The headline number dropped to -3.0 percent from -2.8 percent and the ex-transport category fell to -1.3 percent  from -1.0. These figures were originally released in an individual report on March 24th.

Spending on capital goods, officially called capital goods orders non-defense ex aircraft and parts, an oft mentioned proxy for business investment, was a another trouble spot. February orders were revised down to -2.5 percent from -1.8 percent. Shipments of these goods, the business investment component of GDP fell to -1.7 percent from -1.1 percent. 

This report added to already reported weak retail sales, personal expenditure and income and trade data, indicating that economic growth in the first quarter probably slowed from the already slight pace in the fourth quarter.

Manufacturing, which accounts for between 10 and 15 percent of U.S. economic activity has been pressured by a strong dollar and weak global demand for more than a year.  

Business efforts to reduce inventories, while stretching back more than six months have made little headway in the face of slowing sales.  The inventory to sales ratio rose to 1.4 in March, the highest it has been since the recession.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg




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