U.S. factory orders have seen the largest drop in over a year with a 2.1% decrease in October, the biggest drop since July.
Key Takeaways
- Business spending on equipment is softening which points to reduced activity in the manufacturing sector.
- The 2.1% decrease in factory goods orders was due to the decline in demand for various goods according to the Commerce Department.
- September data was also revised lower to show orders rising 0.2% as opposed to the previously reported figure of 0.7%.
Economists had forecast a 2.0% decline in October, making the recent decline relatively expected - annually, orders actually increased 8.3% in October due to the overall heightened activity in the sector throughout 2018.
An ISM survey shows reports of improved business conditions in November, also revealing complaints among manufacturers regarding the shortage of workers available to fill positions as well as the ongoing trade war and related tariffs impacting operations.
US Factory Orders Move Down Most In 15 Months
but
EUR/USD No Jump above 1.14 Key Level - still Testing 1.14 Zone...
Now 1.1398
Important EOD & EOW pic.twitter.com/kGxBU1wQRQ
— Piotr Janiszewski (@ATAFIN) December 6, 2018
Demand for Goods
Orders for transportation equipment plunged 12% in October, the biggest drop since October 2017 with a 59.3% drop in defense aircraft and parts. For comparison, transportation equipment orders rose 0.9% in September.
Civilian aircraft and parts also saw greatly reduced demand with a 22.2% drop in orders in October, which also saw a far more modest 0.1% drop in the demand for motor vehicles.
Primary metals and machinery also dropped while computers and electronics orders saw increased demand along with fabricated metal products and electronic components, appliances, and equipment.
The Commerce Department reported that non-defense capital goods excluding aircraft were unchanged in October after dropping 0.6% in September. Such goods are referred to as core capital goods and their rate of demand is used in determining business equipment spending in the GDP report - core capital goods shipments rose 0.3% in October and fell 0.3% in September.
Despite the $1.5 trillion tax cut rolled out by the Trump administration, business spending on equipment has undergone a slowdown since Q2 following strong growth in Q1 and throughout 2017.
Market Reaction
Spot gold is currently up 0.07% and trading at $1,237.95/oz, seeing gains over the market uncertainty regarding weaker-than-expected employment data and perhaps the drop in factory orders as well. Gold saw a high of $1239.56/oz and a low of $1,237.03/oz while US equities took a hit with the Dow Jones dropping by almost 500 points.
Gold Price Chart
More articles from Conor Maloney
