Posted by Marcelo Perez

New orders for manufactured goods in the US plunged 4.6% in the month of November, the 4th straight monthly decline. The contraction follows a downwardly-revised record 6.0% drop in orders in October and a 3.1% drop in September. The data, first reported by the Commerce Department, is worse than expected, as economists were expecting a number closer to 2.3%.

Excluding transportation orders, factory orders fell a record 4.2%, the biggest drop since the series was first stated in 1992. Orders for core capital equipment goods, the kind of tools businesses invest in order to expand or update their productive capacity, rose a surprising 3.9%, the biggest gain since December 2007.

Orders for durable goods decreased a revised 1.5% in November, down slightly from 1.0% drop estimated a week ago. Orders for nondurable goods fell a record 7.4% for the month. The loss was compounded by a 22% drop in shipments from petroleum refineries.

The report is not as negative as it first appears. First off, the figures are not adjusted for any price changes. Considering that we’ve experienced pretty drastic price deflation in the past few months, that is sure to misrepresent the data. Consider oil and gas prices, for instance, which have fallen by record levels in the past few months, and 20% in the last month. The 22% drop in shipments is mostly due to that adjustment in prices, not demand destruction. So, just how much of an effect did price deflation have on total factory orders? Well, if you subtract the CPI number from November with today’s report, you get a much more palatable 2.9% decline in factory orders. Not as bad as you first thought.

Also, orders showed impressive gains in key areas, including the all-important core capital equipment segment. Businesses invest in core capital equipment to update or expand capacity and production, and spending in the category increased 3.9% for the month. Maybe businesses are trying to accommodate for an upcoming surge in demand?! Or maybe that’s just wishful thinking, but whatever the case, they are spending.

Report Details (Via MarketWatch):

Inventories of factory goods fell 0.3% in November, with the inventory-to-sales ratio rising to 1.41 from 1.33 in October.

Orders were mixed across most durable-goods industries. Transportation orders fell 7.6%, including a 38% drop in aircraft and a 0.1% drop in motor vehicles.

Excluding transportation goods, factory orders fell 4.2%, the fourth straight decline.

Orders for machinery rose 2.4%, while orders for computers and electronics rose 6%.

Orders for consumer durable goods fell 1.3%.

Shipments of durable goods fell 3.1%, with shipments of core capital equipment down 0.2%.

See Full Report.