Bidenflation: Factory Orders Plunge Twice as Much as Expected

New orders for U.S.-made goods fell twice as much as expected in January–and by even more than that in inflation-adjusted terms.

The Commerce Department said on Thursday that factory orders dropped 0.4 percent in December, the largest month-to-month drop since the pandemic lockdown crash of April 2020. Economists had forecast orders tumbling just 0.2 percent.

Factory orders are measured in nominal dollars, meaning they do not take into account inflation. When prices are rising rapidly, as they did for most of last year, even a rise in orders can actually be a contraction of output because factories may be putting out fewer goods that have higher prices.

The prices of goods produced in the U.S. rose 0.9 percent in December, according to the Department of Labor’s Producer Price Index. The prices of goods less food and energy, probably a better metric for factory inflation, rose 0.5 percent. The index for processed materials for intermediate demand less foods and energy, which may be the best proxy for factory orders overall, rose 0.7 percent.

That suggests that real orders declined in December.

Durable goods orders declined 0.7 percent while durable goods prices–as measured by the Consumer Price Index–rose 1.8 percent. Because the CPI includes import prices that the PPI excludes, the two measures are not directly comparable. But the indication is that real durable goods orders fell by more than two percent.

Orders for nondurable goods declined by 0.2 percent and CPI prices climbed 0.9 percent.

A special category referred to as “core capital goods” excludes defense orders and transportation. It is taken as a proxy for business investment. This rose 0.3 percent in December. The prices of private capital equipment, as measured by the PPI (which excludes imports), rose 0.6 percent. So even here, inflation-adjustment likely indicates a real contraction.

Data for November was revised higher to show orders increasing 1.8 percent, up from the 1.6 percent previously reported.

Orders were up 16.9 percent for all of 2021 compared with the pandemic-afflicted prior year but the Producer Price Index for intermediate processed goods, a rough proxy, rose 24.4 percent.

Orders for construction goods and supplies rose 1.3 percent in December and were up 17.2 percent for the year.  The Producer Price Index for materials and components used in construction, however, rose by 1.5 percent month-over-month and 22 percent compared with December of 2020. This too suggests a real contraction masked by inflation.