Revisions to US factory orders impact Q1 spending outlook, inventories to be drag on Q1 GDP growth

The previous advance manufacturing report had showed that durable goods orders in February had declined. However, the drop in durable goods orders has been revised to 3% from the initial estimate of 2.8%. Furthermore, most of the downward revision was made in non-defence capital goods. According to the advance report, the core capital goods orders fell just 1.8%; however, yesterday’s report revised the decline to 2.5%.

Core capital goods orders dropped at a three-month annualized rate of 10.2%, whereas the shipments are declining at a 7.7% clip. With strengthening of orders components of certain purchasing manager surveys, several analysts anticipate moderate rebound in business investment spending figures in Q1, said Wells Fargo.

With the downward revisions to earlier reported figures and based on the latest report, those projections are expected to be lowered with earlier estimates already just barely positive, added Wells Fargo. This possibly indicates total decline in equipment outlays in Q1, noted Wells Fargo.

Revision in inventory continues and is seen in the 0.4% drop in February’s factory inventories. This is in line with the projection that inventories will again be a drag on Q1’s headline GDP growth, according to Wells Fargo. The inventory-to-ship ratio was 1.37 for the third consecutive month. This is evident from the decline in manufacturing payrolls for the past two months. In the past two months, 47,000 manufacturing jobs were lost, which has been eclipsed by more solid job growth in other industries. However, this indicates towards other problem the US Fed will face as it attempts to hike rates in 2016.

Downturn in factory sector remained at the turn of the year. However, with the start of the spring, certain headwinds might ease. The US dollar continues to be solid on balance; however, in comparison with major trading partners, the dollar has actually depreciated around 4.5% since January.