Factory Orders for Nondefense Capital Goods New Orders (Excluding Aircraft) – Easy Trends (thru November 2012)

Factory orders reports provide insight into how busy our factories will be in the coming months.  I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for the factory orders report and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest factory orders trend analysis for more info.

What are factory orders for nondefense capital goods?  From the USA Today / IHS Global Insight Economic Outlook Index:

Key barometer of business owners’ confidence in the economy.  Tracks how much business owners plan to invest in machinery, computers and other goods.

Why do investors care about factory orders for nondefense capital goods?  Simple – it’s a leading indicator for the economy.  Changes seen in the level of new orders will often mirror changes in the economy several months later.  Why is it “excluding aircrafts” though?  Factory orders for aircrafts come in bursts, so the ups and downs obscure our ability to see the underlying trend in the data.  For that reason, we will subtract factory orders for aircraft out of the equation.

Here’s a graph of the Nondefense Capital Goods New Orders (Excluding Aircraft) from the Federal Reserve Bank of St. Louis for the past five years:

Nondefense Capital Goods Excluding Aircraft New Orders - November 2012 - FRED

Source: StLouisFed.org

Factory Orders Trends and Projections

Below, I will discuss whether factory orders for nondefense capital goods (excluding aircraft) is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.

Factory Orders Trend Analysis

Quick ‘n Easy

An indicator for how much business owners plan to invest in machinery, computers and other goods has been dropping fairly rapidly since February.  There is currently a confirmed downward trend of about 1.5 percent per month, although the latest two readings came in too high to consider part of this downtrend – setting us up for an end to the downward trend as of September, assuming next month’s report confirms this.  Because nondefense capital goods (excluding aircraft) is considered a leading indicator, this suggests that the future may be bright once again soon.

Nondefense Capital Goods Excluding Aircraft New Orders - November 2012 - Trends

Source Data: U.S. Census Bureau

Current Trend: Feb 2012 – Sep 2012 – During that time, there was a confirmed downward trend of about $977 million per month, which is approximately 1.5 percent of the latest month’s figure.  But the latest two readings were too high to consider part of that downtrend – good news.

Last Confirmed Trend: Oct 2009 – Feb 2012 – During that time, there was a confirmed upward trend of about $537 million per month, which is approximately 0.8 percent of the latest month’s figure.

Projected Next Data Point

The next report is for December 2012.  If the latest trend (excluding off trend data points) extends perfectly, the December 2012 factory orders for nondefense capital goods (excluding aircraft) will be about $56.76 billion, which would be a decrease of about 10.5 percent from the latest monthly figure.  That huge of a drop will simply not happen, and it’s practically a guarantee that the downward trend will have ended at the September time point.

Easy Take

The latest reading for November 2012 factory orders for nondefense capital goods (excluding aircraft) surged again versus the previous month.  Moreover, the previous month was revised upward.  Not surprisingly, the latest report was too high to consider part of the latest downtrend – a good sign, as that’s two consecutive such readings now.  We are almost certain to see an end to the downward trend as of September, and it should likely be replaced with a steeply rising one.  Because this is considered a leading indicator, it implies potential strength in the future of the economy in the coming months.  And that would imply good things starting in Spring 2013 – let’s keep hope alive.

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