Factory Orders for Nondefense Capital Goods New Orders (Excluding Aircraft) – Easy Trends (thru May 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NOTE: You may be reading an outdated analysis.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 - May 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 is in a slowly rising trend.  From July 2012 to May 2013, nondefense capital goods (excluding aircraft) was increasing at about 1.0 percent of the latest figure per month.  Because it’s considered a leading indicator, that reassures us that a recession probably isn’t anywhere in the near future, but the 1 percent rise is nothing to write home about either.

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

Source Data: U.S. Census Bureau

Current Trend: Jul 2012 – May 2013 – During that time, there was a confirmed upward trend of about $688 million per month, which is approximately 1.0 percent of the latest month’s figure.

Last Confirmed Trend: Feb 2011 – Mar 2012 – During that time, there was a confirmed upward trend of about $492 million per month, which is approximately 0.7 percent of the latest month’s figure.

Projected Next Data Point

The next report is for June 2013.  If the latest trend (excluding off trend data points) extends perfectly, the June 2013 factory orders for nondefense capital goods (excluding aircraft) will be about $69.29 billion, which would be an increase of about 1.1 percent from the latest monthly figure.  That kind of an increase seems reasonable given that it’s nearly identical to the current trend’s average rate of increase.

Easy Take

The latest reading for May 2013 factory orders for nondefense capital goods (excluding aircraft) extended the confirmed upward (good) trend of about 1.0 percent per month that began in July 2012.  It’s not a very steep rise, but the trend is sloping upward.  Because this is considered a leading indicator, it signals sluggish growth in the future of the economy in the coming months, which of course is better than no growth.  It probably helps rule out recession for at least the next six months or so.

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