Factory Orders Rose in July, but Not as Much as Expected

Factory orders rose just 0.1% in July, the U.S. Commerce Department announced Thursday in a report that further clarified that the manufacturing sector's expansion slowed down this summer.

The consensus of economists surveyed by Bloomberg had been that factory orders would rise 0.3% in July, after their declines of 0.6% and 1.8% in June and May, respectively.

The more statistically significant "ex-transportation" number -- which excludes the often-volatile airplane and auto industry segments -- fell 1.5% in July. The ex-transportation component fell 0.6% in June and 1.2% in May. But excluding the defense sector, factory orders rose 0.2% in July after falling 0.5% in June and declining 1.8% in May.

Transportation Orders Boost Total

Breaking down the July numbers by category, one can see the impact of a large increase in transportation orders on the top-line factory orders stat: Transportation equipment orders surged 12.9%. Elsewhere, orders were mostly lower. Machinery orders plunged 13.6%, appliances declined 5.9%, furniture decreased 4.7%, computers and electronics products dipped 2.2%, fabricated metals fell 1.3%, and primary metals orders were unchanged.

The factory orders statistic provides one of the most comprehensive pictures of the future of the manufacturing sector -- a snapshot of how busy factories are likely to be in the period ahead. And factory orders are a major value-added component of the U.S. economy.

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July's factory orders report complicates the prognosis for the U.S. manufacturing sector -- to-date the primary growth engine for the U.S. economic expansion. True, factory orders rose in July, but the gain -- the first in three months -- was slight, and due primarily to a jump in the often-volatile transportation component.

Take away transportation, and factory orders were weak, and have declined an average of 1.1% over the past three months. However, the factory orders report conflicts with recent Institute for Supply Management manufacturing data for August, which shows a factory sector that's still expanding.

Given the conflict between the two, economists will need a couple more months to gauge the manufacturing sector's precise condition. About all one can conclude at this juncture is that the manufacturing expansion continues, but the pace of activity has slowed.