Factory Orders Suggest What’s Next

As the manufacturing recession becomes more and more unassailable (and I mean that in more than one way), the fact that it still shows no end or let up suggests still greater difficulty beyond manufacturing. As feedback loops become more established and robust, and thus convince more and more non-manufacturing firms to adjust instead of waiting out for Janet Yellen’s assurances to prove just once useful, the economy can only perform further negatively and among a growing contagion.

The latest update in factory orders was perfectly consistent with the rest of 2015 so far, which is again a highly negative suggestion about future economic performance. Factory orders are forward looking by their nature, orders after all. October’s estimates were 5.7% less than October 2014, following 7% contractions in August and September. Year-over-year, factor orders have declined for exactly twelve months, meaning now a full year of contraction in orders.

Seasonally-adjusted, factory orders were higher in October than September which means nothing toward suggesting anything but monthly variation. Even in these adjusted estimates, the recessionary imprint is perfectly clear. The last peak was June 2014 (not counting the enormous, one-off surge last July) with as estimated $510 billion in orders for future product. Every month after that (again, not including July) has been less, a run of fourteen months that precludes anything like an “anomaly”, “aberration” or especially “transitory.” Continuing month after month at 7% or more below the prior peak is not just significant, it is downright alarming.

That concern relates to the forward nature of new orders and how they have already sunk so far for so long. The 6-month average Y/Y change at again almost -8% is very close to the worst of the dot-com recession. But that recession lasted, in terms of factory orders, a total of 15 consecutive months of contraction (starting December 2000, three months before the official beginning of the recession) and 17 out of 18. Its deepest point, in terms of the 6-month average, was achieved 10 months in.