Highlights
May proved to be a good month for manufacturing after all as factory orders rose 0.4 percent vs Econoday’s consensus for no change. Durable orders did slip 0.4 percent on an expected downswing in aircraft orders which otherwise have been strong and also on supply snags tied to a fire at an auto supplier. Orders for nondurables, the new data in today’s report, proved very strong on energy products, rising 1.1 percent on the month on gains for petroleum and coal.

Solid news comes from capital goods where core orders (nondefense ex-aircraft) rose a respectable 0.3 percent on top of the prior month’s 2.0 percent surge. Shipments for this reading in May, which are inputs into GDP business investment, are revised higher from last week’s advance data, up 3 tenths from the initial reading to a gain of 0.2 percent (in an offset, April’s shipments are revised 2 tenths lower to what is still a very strong 0.8 percent gain).

Orders for steel, where tariffs are in effect, slipped in May after rising strongly the prior two months with aluminum orders extending a strong 3-month run. Inventories for the metals are building strongly. A major positive in this report is a fourth straight strong build for total unfilled orders, up 0.5 percent which hints at strength for factory payrolls in Friday’s employment report.

This report overshadows a decline in the Federal Reserve’s measure of manufacturing production, one skewed lower by a cut in factory hours tied to the auto sector snag, and it closes the book favorably on May. Advance factory data so far in June have been mostly strong including yesterday’s ISM report and month-end upgrade for the manufacturing PMI. Tariffs and the risk of trade disruptions aside, the factory sector is a major driver right now for the 2018 economy.

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