Factory orders rebounded 0.7 percent in May, reversing April's revised 0.7 percent decline but still well short of reversing March's 2.1 percent plunge. Orders for durable goods rose 1.3 percent, which is upwardly revised from last week's advanced 1.1 percent gain, while orders for non-durable goods rose 0.2 percent. Orders for capital goods, boosted by orders for commercial aircraft, were especially strong in May, but again follow steep declines in the prior two months. Orders for consumer goods, at plus 0.3 percent, show two months of gains while orders for motor vehicles popped higher to more than reverse the prior month's dip.
Factory shipments were also strong in May, up 0.5 percent following a 0.2 percent dip in April. Capital goods shipments showed strength while shipments of consumer goods were also up. Unfilled orders in the factory sector were unchanged in the month while, in especially good news, inventories dipped to bring the inventory-to-shipment ratio down one tenth to an even leaner 1.27. Low inventories reduce the risk of overhang should manufacturing activity begin to pivot lower.
And pivot lower is what activity, especially new orders, did in yesterday's ISM manufacturing report for the month of June. But going into June, the factory sector was bouncing back convincingly from weakness in April and March. The Dow is moving to morning highs following today's report.
Market Consensus before announcement
Factory orders stumbled noticeably during April and March with April orders down 0.6 percent on top of March's downward 2.1 percent decline. This was the third back-to-back decline of the recovery and the steepest. Orders for commercial aircraft gave April a substantial boost. If this volatile component had swung the other way, the April decline would have been severe. More recently, new factory orders for durables rebounded 1.1 percent in May.