Factory Orders for Nondefense Capital Goods New Orders (Excluding Aircraft) – Easy Trends (thru March 2013)

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NOTE: You may be reading an outdated analysis.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 - March 2013 - 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 appears to be in a falling trend now, though it’s not confirmed.  We now must wait for the next report or two to see whether there is a chance this trend will eventually become confirmed.  From Jan to Mar 2013, nondefense capital goods (excluding aircraft) was decreasing at about 2.2 percent of the latest figure per month.  Because it’s considered a leading indicator, if the downward trend becomes confirmed, it may signal weakness starting around Fall 2013 – but wait until the next report before worrying about that just yet.

Nondefense Capital Goods Excluding Aircraft New Orders - March 2013 - Trends

Source Data: U.S. Census Bureau

Current Trend: Jan – Mar 2013 – During that time, there was an unconfirmed downward trend of about $1.4 billion per month, which is approximately 2.2 percent of the latest month’s figure.

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 2.9 percent of the latest month’s figure.

Projected Next Data Point

The next report is for April 2013.  If the latest trend (excluding off trend data points) extends perfectly, the April 2013 factory orders for nondefense capital goods (excluding aircraft) will be about $62.86 billion, which would be a decrease of about 3.2 percent from the latest monthly figure.  It’s possible to see such a drop, but if you look at the longer-term trend, there doesn’t seem to be a reason to suspect a big drop right now, especially when most other indicators are trending positively.

Easy Take

The latest reading for March 2013 factory orders for nondefense capital goods (excluding aircraft) contributed to an unconfirmed downward (bad) trend of about 2.2 percent per month that began in January.  But if the next couple of reports don’t show drops, we may see an end to that trend pretty quickly.  Still, anytime we see a downward trend in a leading indicator, it can be cause for concern until the trend is reversed.  Because this is considered a leading indicator, it may signal sluggish growth in the future of the economy in the coming months.  If a downward trend actually gets confirmed, that would signal trouble around Fall 2013, but other indicators aren’t suggesting that to be the case just yet.

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