US: Factory Orders Regain Some of Their Recent Losses

• Factory orders increased 1.6 percent in February after two months of consecutive losses. Growth in the factory sector remains subdued, but rising unfilled orders indicate that manufacturing should strengthen.

Transportation and Defense Lead the Way

Factory orders rebounded 1.6 percent in February, following two straight months of sizable declines. Although the gain looks promising, January’s number was revised downward. Furthermore, the volatile subcomponents of transportation and defense continue to drive the headline number. Excluding transportation, orders increased a more modest 0.7 percent. February saw a relatively large gain in orders for nondefense aircraft and a rebound in motor vehicles & parts orders. Nondefense orders have remained essentially flat since September 2013, despite the gain in transportation. Overall, new orders are lower than they were a year ago, showing that the factory sector still has moderated.

Core capital goods orders, which exclude the volatile defense and aircraft components, dropped 1.4 percent in February. Growth in this critical area has moderated over the past year, although these orders are still up 2.1 percent from a year ago. Core capital goods orders are a good indicator of business investment, which we expect was subdued throughout the first quarter of this year. We expect investment to pick up in subsequent quarters, but overall, businesses are likely to remain cautious as long as income and revenue growth remain soft.