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US Factory Orders Rise,  Private Payrolls Drop

Posted by Joseph Trevisani on Oct 5, 2016 3:37:48 PM

In a positive sign for the economy new orders at U.S. factories increased modestly but opposing that private payrolls saw the smallest gain in five months as statistics continue to depict an economy unable to find a firm footing for expansion. 

The Commerce Department reported that new manufacturing orders rose 0.2 percent in August, better than the -0.2 percent forecast, for the second monthly gain after two consecutive declines. This followed July’s downwardly revised 1.4 percent gain, initially 1.9 percent. Economists in the Reuters poll had predicted at 0.1 percent decline.

Payrolls at private firms served by ADP reported 154,000 new hires in September after August’s revised 175,000 positions. This was the smallest increase since April's 149,500 and, except that, the smallest gain in three and a half years.  

The government employment report will be issued on Friday. Non-farm payrolls are expected to rise to 174,000 in September from 151,000.  Unemployment is forecast to remain at 4.9 parent. 

Employment has been a crucial focus for the Federal Reserve.  A good payroll number on Friday will keep the possibility for a rate hike at the November or December FOMC meetings active. A weak number will eliminate any chance of a November increase and substantially reduce the odds for one in December as well. 

On the year factory orders were 1.6 percent lower following July’s 4.0 percent fall. It was the 22nd straight negative month that the number of orders declined over the prior twelve months. This is the longest contraction in in U.S. history and the first time it has taken place without a recession. 

Factory orders outside of the transportation sector, in practice minus the civilian aircraft orders of Boeing Company of Chicago, were unchanged in August. July's bookings were revised down to -0.1 percent from 0.2 percent. 

Durable goods orders, a component of the overall factory output for items designed to last three years or more and previously released for August on September 28th, was revised up to 0.1 percent from flat. Durables ex-transport as above, were higher at -0.2 percent from -0.4 percent, as were core capital goods, that is  'capital goods non-defense ex aircraft',  adjusted to 0.9 percent from 0.6 percent. Shipments of these core capital goods improved to -0.1 percent from -0.4 percent.  

Core capital goods orders are a measure of business sector confidence and a firms' willingness to spend on productive infrastructure. Shipments of these core goods are the business spending component of the GDP calculation. 

The Atlanta Fed GDPNow estimate of the growth in the U.S. economy in the third quarter was unchanged at 2.2 percent annualized today. The bank cited the opposing effects of an expansion in real consumer spending and a wider than expected August trade deficit.  

Manufacturing comprises between 12 and 15 percent of the U.S economy and has been hampered by the ascendant dollar, making U.S goods more expensive on the world market, and by weak demand around the globe. 

In a separate release the Institute for Supply Management said its September non-manufacturing index jumped to 57.1 from 51.4 the prior month. This is the highest since October 2015 and its biggest monthly gain on record.  All three main components were markedly higher. New Orders soared to 60.0 from 51.4, production and business activity rose to 60.3 from 51.8 and employment climbed to 57.2 from 50.7.

Inventories of unsold factory goods rose 0.2 percent in August as shipments were unchanged. 

Markit Economics of London reported that its service sector purchasing managers index rose to 52.3 in September from 51.9 in July.

The ISM and Markit Surveys use 50 as the dividing line between expansion and contraction. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg








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