Factory Orders Confirm Slow Start to Equipment Spending

Factory orders declined 1.4 percent in January, in line with expectations and largely confirming the cooling trend hinted in last week’s durable goods report. Core capital goods orders were down 0.3 percent in January. 

Orders Suggest Slower Business Investment in Q1

• January marked the first decline in factory orders since July 2017, with the headline down 1.4 percent. Aircraft orders slipped in January, weighing on the headline, but core orders also fell.
• The 0.3 percent fall in core capital goods orders, our proxy for future equipment spending in GDP, does not bode well for future activity. Shipments in the category also ticked down 0.1 percent in January, which is a direct input in the GDP calculation. 

Survey Says Orders are Up, Hard Data Says Otherwise

• Not only did core capital goods and shipments turn negative in January, but the pipeline does not look much better, as unfilled orders for the category declined for the second straight month.
• The ISM new orders index has been hovering near cycle highs as recently as February, yet hard data is pointing to cooling activity at the start of the year, at least for manufacturers of durable goods. Nondurable goods orders were up 0.8 percent in January. 

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