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US Factory Orders Drop

Posted by Joseph Trevisani on Jul 5, 2017 6:21:13 PM

New orders for U.S manufactured goods declined more than predicted in May  as activity in the manufacturing sector continues to moderate despite the continuing demand in oil and gas drilling material.

Factory orders dropped 0.8 percent following  April's revised 0.3 percent decrease, acording to the Commerce Department on Wednesday.  It was the second consecutive decline. Analysts had forecast a 0.5 percent decrease.  April had initially recorded a 0.2 percent drop. Annual orders were 4.8 percent higher. 

The recovery in manufacturing which is about 12 percent of the U.S economy  has been led since last summer by a surge in demand for oil and gas driling equipement.  U.S. and Canadian shale drillers have responded to the OPEC and Russian  attempt to drive prices higher with production cutbacks by dramatically increasing their output. 

West Texas Intermediate prices have declined sharply from their post-OPEC agreement surge to $55 a barrel  in February. Last month's  $42.53 low was below where WTI had been trading just before  the OPEC-Russian deal was announced  late last November.

The  increase in shale drilling has moderated over the past several weeks with the latest Baker Hughes  report on U.S rigs showing the first weekly decline since last year.

 Orders for non-defense capital goods, also known as core capital goods and used as a proxy for business spending  rose 0.2 percent in May  instead of the originally reported 0.2 percent drop.  Shipments of these goods ticked up 0.1 percent instead of the first report at 0.2 percent. 

New  placements for machinery climbed  1.1 percent. Mining, oilfield and gas field machinery orders jumped 8.5 percent despite the slight drop in the rig count. 

Electrical equipment and components and appliance orders rose 1.0 percent. Orders for primary metals moved ahead 0.6 percent. Transportation equipment fell 3.0 percent.

This was the largest drop in  transport interest since last November and included an 11.6 percent decline in non-defense aircraft orders. In practice that largely means  the civilian aircraft business of Boeing Company of Chicage. 

Motor vehicle orders rose a modest 0.1 percent in May after increasing 0.9 percent in April.

Unfilled orders for factory goods fell 0.2 percent following  two straight months of increases. Inventoriy stockpiles edged 0.1 percent lower  after gaining for six consecutive months, while shipments rose 0.1 percent.

The inventories-to-shipments ratio was static at 1.38

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Chart: Bloomberg


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