By Ryan Barnes
Release Date: First week of the month
Release Time:
Coverage: Two months prior
Released By: U.S. Census Bureau
Latest Release: http://www.census.gov/indicator/www/m3/index.htm


Background
The Manufacturers' Shipments, Inventories and Orders Report, often referred to as the Factory Orders Report, contains partly new and partly old information, although the old information is broken down more thoroughly in this release. The report contains the Durable Goods Report information, which is released about one week prior (but with revisions), and introduces non-durable items into the mix, representing industries such as apparel and food products. The Factory Orders Report is meant to capture the overall health of the entire manufacturing sector, measuring new orders, inventories, total shipments and unfilled orders for the month surveyed.

Statistics are displayed in current dollars and as percent changes from prior month and prior year. As with the Durable Goods Report, the indicator derives most of its value as a supply/demand indicator; inventory levels can be compared to shipments, new orders and other indicators of consumer demand such as retail sales and gross domestic product (GDP).

What it Means for Investors
The Factory Orders Report is more useful than the Durable Goods Report for examining trends within industries. While only "computer equipment" may be counted in the Durable Goods Report, the Factory Orders Report will show separate figures for computer hardware, semiconductors, monitors, etc. This is mainly due to the speed at which the (advance) Durable Goods Report is released, which makes it more timely but also more vague.

The report is not likely to move the broad markets, as about half of the data is already known - the ratio of durable to non-durable manufacturing (in dollars) is about 55/45. Factory Orders Report levels are, however, valuable for estimating future economic output levels, as estimates from the Factory Orders Report are used to calculate GDP itself. Non-durables manufacturing industries may move as a group upon the release, as investors in those stocks pour through the data looking for clues on upcoming earnings levels.



Because current dollars are used to calculate values, neither inflation nor price - changes that may affect how inventories are valued - is accounted for. For example, if the price of petroleum drops mid-month, a company holding the same inventory levels based on volume will show a drop in the value of its inventory in the Factory Orders Report.

Strengths:
  • Good industry breakdowns within manufacturing
  • Data provided raw and with seasonal adjustments
  • Provides forward-looking data such as inventory levels and new business, which may count toward future earnings periods
Weaknesses:
  • Rehashes some information on durables manufacturing
  • Difficult to make comparisons with indicators that report on volume rather than price
  • Not very timely, reporting on two months prior

The Closing Line
The Factor Orders Report arrives early enough to be useful for evaluating possible GDP, but too late to move the markets or carry much of a surprise factor. Holders of manufacturing firms should find this report valuable in preparing upcoming earnings statements.

Next: Economic Indicators: Gross Domestic Product (GDP) »



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