S&P 500 Bull Market Report

Factory Orders, Shipments and Inventories Beat Estimates

The factory report beat estimates with a 1.5% June headline orders bounce and a huge 1.4% ex-transportation increase, alongside a 2.0% (was 2.1%) transportation gain. We saw upwardly-revised respective May gains of 2.3% (was 2.1%), 1.0% (was 0.8%), and 10.0%.

We saw price-led nondurable gains of a remarkably strong 2.1% for shipments and orders and a bigger than expected 1.1% for inventories, after respective upwardly-revised gains of 1.4% (was 1.0%) and 1.4% (was 1.2%).

Factory shipments rose 1.6% after a 0.9% (was 0.7%) May gain, while factory inventories rose 1.0% after a 1.1% gain.

We saw tiny upward equipment data revisions from the durables report that added to encouraging nondurables data for inventories, orders, and shipments.

Nondefense capital goods orders excluding aircraft increased 0.7% (was 0.5%) after May’s 0.6% (was 0.5%) gain. Nondefense capital goods shipments excluding aircraft were up 0.6% in June after climbing 1.0% (was 0.9%) previously.

Transportation orders received a lift from a June Boeing orders surge that coincided with the canceled Paris Airshow, alongside firm aircraft shipments, but a drop in vehicle assemblies.

Boeing orders surged to a 3-year high of 219 planes, after a rise to 73 in May from 25 in April and a 2-year high of 196 in March. Boeing shipments rose to 45 planes from 17 in April and May, and 77 in March. The vehicle assembly rate fell to 8.9 mln in June from 9.7 mln in May.

The overall factory I/S ratio fell to 1.48 from 1.49 in April and May, versus a 19-month low of 1.47 in January. We saw an all-time high of 1.83 in April of 2020, a peak from the last recession of 1.46 in early-2009, and an all-time low of 1.14 in December of 2005.

The factory durable I/S ratio was steady at 1.80, versus a 2-year low of 1.74 in January, and a 2.39 all-time high in April of 2020. We saw a 1.89 high from the prior recession in May of 2009, and a 1.59 low from the last expansion in November of 2013.

We expect a solid growth path for the factory data through 2021, capped by capacity constraints and supply chain problems. We’ve seen persistent all-time highs for ex-air capital goods shipments, and 12-year highs for shipments of computers and electronic equipment.

We now expect a boost in Q2 GDP growth to 6.6% from 6.5%. We still assume 7.0% GDP growth in Q3.

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