June Factory Orders

On Friday, shortly after the opening bell, the Commerce Department reported that new orders for manufactured goods (durable and nondurable) in June advanced 0.6% (or $3.1 billion), to $493.8 billion, just shy expectations for a 0.7% advance following a 1.3% decline in May (revised down from -0.7% previously reported). This is a crucial reading as manufacturing is responsible for roughly 12% of the U.S. economy.

Breaking down the reading, new orders for manufactured durable goods advanced 1.9% to $245.4 billion, led by a 3.7% increase in orders for transportation equipment. New orders for manufactured nondurable goods decreased 0.5% to $248.4 billion.

Shipments of manufactured durable goods increased 1.3% to $257.7 billion, led by a 3.0% advance in shipments of transportation equipment. Shipments of nondurable goods fell 0.5% to $248.4 billion, led by a 4.1% decline in shipments of petroleum and coal products.

Unfilled orders for durable goods ticked down 0.7% to $1,160.2 billion, led by a 1.0% decline in unfilled orders for transportation equipment.

Lastly, inventories of manufactured durable goods rose 0.3% to $426.0 billion led by a 0.9% increase in inventories of transportation equipment. Additionally, inventories of nondurable goods declined $0.1 billion (i.e. virtually unchanged) to $269.6 billion, led by a 2.4% decrease in inventories of petroleum and coal product.

Importantly, new orders of non-defense capital goods excluding aircraft (i.e., core capital goods) increased 1.5% in June, following a 0.2% increase in May and a 1.1% decline in April. Recall, capital goods are not sold to consumers, rather they are tangible goods used in the manufacturing of consumer goods. For this reason, core capital goods are a key metric that many consider to be a proxy for business investments. It is important to consider new orders for capital goods excluding transportation equipment (planes and automobiles) because the high value of these goods can easily skew month-to-month readings, increasing volatility and making it more difficult to analyze the underlying trend.

Shipments for core capital goods advanced 0.3% in May, following a 0.4% increase in both May and April.

All in, while the increase in new orders for capital goods is encouraging, we must keep in mind that this report is backward looking and points to a time before President Trump threatened additional tariffs on China (the reliability of the next reading regarding July's Factory Orders will no doubt suffer from the same issue). As a result, we believe the results here (and next month should progress not be made on trade by then) must be taken with a grain of salt as uncertainty regarding the macroeconomic outlook and therefore business confidence has clearly increased since the data in this report was collected. Recall, even without immediate implementation (the deadline for the next round of tariffs being September) the potential for new tariffs will no doubt impact management teams' ability to forecast the future demand environment and as a result, delay investment decisions.

Members interested in digging even deeper can view the official release, here.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.