Factory Orders

Factory orders is an indicator that is more like the durable goods orders except for the fact that it includes all orders including the durable and non-durable manufacturing stuff such as apparel and perishable products like foods among other items.

Why is it important:

The Factory Orders Report is more useful in the examination of trends within industries. While only "computer equipment" may be counted in the Durable Goods Report, the Factory Orders Report will show separate figures for computer hardware, semiconductors, monitors, etc. factory orders can be more accurate in terms of giving direction of the sector. Since it is not always that a company has to purchase expensive equipment in order to enhance production, investors cannot rely on durable goods orders alone.

Think of a situation where the company purchases machinery that has a life span of about five years, the subsequent years may not indicate any orders for such equipment even though the production induced by the purchase of the equipment will still be affecting the market until the equipment outlives its usefulness. This situation only leaves the investor with one way of predicting impending growth or economic decline; the factory orders. This is because the factory orders will include even the perishable as well as recurrent stuff used in the production. Investors can therefore be able to tell whether the company is planning on increasing production or not depending on the trends of the factory orders.

How is it computed?

The Factory Orders Report is meant to capture the overall health of the entire manufacturing sector, measuring new orders, inventories, total shipments and unfilled orders for the month in question. The statistics are displayed in current dollars to maintain accuracy and to avoid discrepancies that would arise in case percentages were to be used since percentages may vary from time to time depending on the actual figures.

How does it affect the forex trade?

Factory orders may affect the forex trade in one major way depending on the prevailing circumstances. If the factory orders are mainly imported from out side the state, the volume of the orders may affect the balance of trade. Visualize a situation where there are so many orders of imports that far out ways the country’s exports; this would create a trade deficit leading to the decline in the country’s foreign earnings, this circumstances are likely to have a direct influence on the dollar rate. In reality however, there should be no cause for alarm over high factory goods orders simply because if the state has a high factory goods order, it signifies increased production and the products are likely to go into the export market thus balancing the trade.

How does it affect the stock market?

This should be an indicator to watch very keenly for a smart investor. During moderate economic times when the economy is not experiencing any extremes, the factory orders can be a very smart way of gauging where to put your investment especially if you are the guy who buys during the low and sells when rates are high. This is because it can be possible to tell which sector is going to increase production in the near future by closely following their purchases. If a sector has been sluggish for a while and people have lost interest in it then you suddenly discover from their purchases the likely hood of increasing production you can strategically buy more shares and hold them for sale when the effect of the new orders eventually reach the stock market.

All the same, the report does not actually have any drastic effect on the stock market simply because most of the statistics in the report is usually publicized through other reports long before the factory orders report is released. This report therefore comes at a time when most investors with any specific targets in this report have already made decisions basing on the earlier released reports. This not withstanding the indicator can be a very useful tool in gauging the trends of future production since it is even used in the calculation of the gross domestic product which will give a hint on upcoming earnings levels.

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