Fundamental Analysis

Capital Spending Firms Despite Soft Print for Factory Orders

Typography

The 3.3 percent decline in factory orders for July is largely a reflection of a drop in aircraft orders following a surge in the prior month. Core orders and shipments still indicate steady improvement in business spending.

Taking Stock

  • The payback from June's surge in aircraft orders was enough to pull the headline into negative territory, but ex-transportation orders were up 0.5 percent—the best month since January.
  • Inventories increased for a second-straight month; this is consistent with our expectation for inventories to be additive to growth in the second half. The fact that the inventory-toshipment ratio came down suggests the stockpiling is justified.

Despite Choppy Headlines, Gradual Firming in Core

  • Shipments of core capital goods orders increased 1.2 percent in July, lifting the 3-month annualized growth rate to 5.4 percent. This is consistent with our forecast for gradual firming in equipment investment in the third quarter.
  • In a positive sign for future spending prospects, core capital goods orders also increased in July, growing 1.0 percent which puts the 3-month annualized rate for that series at 5.1 percent.

Author: Wells Fargo SecuritiesWebsite: http://www.wellsfargo.com/
Wells Fargo Securities
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.
More from the author