Crescenzi: Factory Orders Mislead

Factory orders increased 1.1% in April, much better than the expectations for a decrease of 0.1%. The data give the appearance of strength that reinforces recent indications about the shallowness of the economic downturn. While the thesis regarding the depth of the downturn is supported by a variety of data, the factory orders' data provide much less support than the headline data indicate, mainly because the gain was boosted by higher prices for nondurable goods, such as food and energy.

For example, orders for petroleum and coal products, which account for about 15% of all factory orders, increased a sharp 6.2%, almost certainly because of an increase in price, not volume.

In addition, orders for food products, which account for about 11% of factory orders, increased 2.2%. Orders for beverage and tobacco products, which account for about 2.5% of factory orders, increased 1.9%. Orders for chemical products, which account for about 14% of factory orders, also increased 1.9%.