Factory Orders for Nondefense Capital Goods New Orders (Excluding Aircraft) – Easy Trends (thru December 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NOTE: You may be reading an outdated analysis.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 - December 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 is not in any kind of trend right now.  A long-standing downward trend was broken thankfully, but the next upward trend was very brief (lasting from September to November 2012).  We now must wait for the next report or two to see whether we’re in any kind of new trend.  Because nondefense capital goods (excluding aircraft) is considered a leading indicator, this will provide some outlook of the future.

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

Source Data: U.S. Census Bureau

Current Trend: None.  The latest reading broke a long-standing downward trend at the September time point.  The analysis of trends since then revealed a short upward trend, but that was broken by the very latest reading as well.  So, we have no current trend because we only two data points to connect (November & December 2012).

Last Confirmed Trend: Sep – Nov 2012 – During that time, there was a confirmed upward trend of about $1.9 billion per month, which is approximately 3.0 percent of the latest month’s figure.

Projected Next Data Point

No projection because there is no trend.

Easy Take

As I had predicted, the latest reading for December 2012 factory orders for nondefense capital goods (excluding aircraft) was high enough to break the previous downward trend at the September time point.  The resulting analysis since then showed another brief confirmed upward trend, but that was also broken (at the November time point).  We don’t have enough data yet to analyze whether there’s a new trend, so we could see things go either way.  Because this is considered a leading indicator, it is reassuring that we’ve seen an end to that long-standing downward trend, which may signal 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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