Factory Orders Up. . . but not! (Inflationary Pressure?)

The Commerce Department reported today (June 4, 2007) that Factory Orders for manufactured goods were up 0.3% for April '07.  This report surprised industry analysts who were forecasting .7-.8% increases for non-durable goods, more than double the actual report.  This report also reflects a decrease from March '07 by 3.8% when factory orders showed a 4.1% increase.

It indicates that manufacturers are curtailing production output in order to bolster the "un-filled order" pipeline which now stands at a record $719-Billion.  This reflects an "un-filled order" increase of 1.8% for April (on an increase of new orders of only 0.8%), building on the 1.8% increase reported for March '07.  It appears that this is a reflection of manufacturers' economic forecast as they position for an expected decline in new factory orders resulting from further economic slowdown.

This could also be a self-fulfilling prophesy.  As manufacturers tighten inventories, demand for products could well cause price increases as orders compete for the reduced quantity of products available.  Should the Fed view this as inflationary or potentially inflationary, they could feel justified in an increase to interest rates in order to reduce demand.  . . . A vicious economic death spiral.

CLICK HERE TO READ THE COMMERCE DEPARTMENT"S FULL REPORT