Factory orders fall at the start of the year in the latest sign that the surge in freight demand may ease
Data from the Census Bureau showed that new factory orders declined in January, dropping 1.4% from December’s levels. This falls slightly below consensus estimates of a 1.2% decline and falls in line with other recent evidence that the rapid acceleration in freight demand growth may be easing.
Much of this decline in manufacturing orders was expected after the advance report last week on durable goods orders. Aircraft orders fell by more than a third in January, contributing significantly to the large drop in durable goods orders overall. Results for nondurable goods, such as food, clothing, and pharmaceuticals, actually rose 0.8% during the month and are now 6.2% higher than at this point last year.
Manufacturer’s new orders serve as a glimpse into what manufacturing activity will be in upcoming months, as factories work to fill the orders that exist. As such, this morning’s report (combined with the recent data on new orders from the ISM index) suggests that manufacturing growth may ease a bit going forward. This may ease some of the pressure on carriers in the economy which have been under stress from both sides, as manufacturing gained steam at the same time that tighter regulations have increased costs and delays.
With that said, manufacturing activity still looks to be generally healthy in the economy overall. Growth in orders may have slipped, but it has slipped from and impressive pace of growth. Excluding the volatile aircraft component, durable goods order growth grew at the fastest pace in over three years in the 4th quarter of 2017. As a result, the decline in January feels like a healthy moderation and less a sign of a prolonged slowdown in activity. Nondurable goods orders, which suffered throughout the course of 2015 and early-2016, grew over 5% in nearly every month in 2017 and look to do the same in 2018. (Story continued below)
Behind the numbers
This morning’s report is yet another piece of disappointing news from January, as data on retail sales, industrial production, trade, and home sales all fell below consensus expectations for the month. Some of this weakness is likely due to temporary factors, but it is important to remember that the economy grew at a fairly rapid pace overall, especially in terms of final demand.
There are still quite a few things working in the economy’s favor headed forward, as the impact of recent tax cuts will likely take hold in upcoming months. Recent talk of tariffs and the increased potential for trade wars could disrupt the general path of the economy, but the fundamentals for growth still look solid.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.