US factory orders: A drag for Q1 business spending - Wells Fargo

According to analysts from Wells Fargo, factory orders revisions are killing outlook for spending of the first quarter.

Key Quotes:

“We already knew from the last advance manufacturing report that durable goods orders dropped in February. The magnitude of that decline was revised to a larger 3.0 percent from 2.8 percent previously. More troubling is the fact that a lot of the downward revision showed up in non-defense capital goods, ex-aircraft.”

“Based on firming in the orders components of some of the purchasing manager surveys, many analysts penciled in modest improvement in first quarter business investment spending figures. Based on this latest read and downward revisions to previously reported figures, those estimates will likely be coming down, and with prior estimates already just barely positive, that likely means outright declines now for equipment outlays in the first quarter. Any expected firming based on the improvement in the PMIs is delayed until the second quarter.”

“The inventory correction continues and that was evident in the 0.4 percent decline in factory inventories in February. This is consistent with our expectation that inventories will also be a drag on headline GDP growth again in the first quarter.”

“The turning of the calendar to 2016 did not change the downward momentum in the factory sector. But as winter turns to spring, some of the headwinds may be calming. The dollar remains strong, on balance, but relative to our major trading partners the greenback is actually down about 4.5 percent since January. Commodities are still depressed, but the CRB index has gained more than 8 percent since January. The return to expansion in a number of Fed surveys (New York, Philadelphia, Richmond) may reflect this relative improvement.”