June's Factory Order Slide Is More Evidence of a Cooling Expansion

Factory goods
Factory goods

Investors received more evidence Tuesday that the manufacturing sector's expansion continues to slow: Factory orders fell a worse-than-expected 1.2% in June, the U.S. Commerce Department announced Tuesday. A Bloomberg survey had expected June factory orders to fall 0.5%, after a revised 1.8% decline in May. Orders rose 1% in April.

Equally significant, excluding the often-volatile transportation component (which includes airplanes and cars), factory orders fell 1.1% in June after a 1.2% decline in May and an 0.7% decline in April. Excluding defense, orders fell 1.1% in June, after a 1.8% decline in May and a 1.1% gain in April.

Separately, personal income and consumer spending were flat in June, the U.S. Commerce Department announced Thursday, missing the slight 0.1% gain estimated for each in a Bloomberg survey. The core personal consumption expenditure (PCE) price index -- a key gauge of inflation the U.S. Federal Reserve monitors -- was flat in June, less than the 0.1% gain seen in the Bloomberg estimate. The core PCE price index rose 0.2% in May.

More Downturns Than Upturns

Digging into the June factory orders report finds that by category on the downside, primary metals orders dropped 2.4%, transportation equipment 2%, computers and electronic products 1.7%, machinery 1.9% and furniture 1.5%. On the positive side, appliances and components orders rose 4.2%, and fabricated metals orders 1.4%.

Economists follow the factory orders statistic because it provides one of the most comprehensive surveys of advance orders for durable goods and indicates how busy factories are likely to be in the period ahead. Factory orders also are a major value-added component of the U.S. economy.

In sum, June's factory orders report provided more evidence of slowing growth in the nation's manufacturing sector after an impressive year-long expansion. If that slowdown persists in the months ahead, it would almost guarantee that the overall U.S. economy will cool because the manufacturing sector has registered the highest growth rate in the expansion so far.