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What are Factory Orders?

Andrew Burger
Andrew Burger

Factory orders is a monthly indicator of economic conditions in the manufacturing sector that estimates the total dollar value of new orders, unfilled orders, orders shipped, and total inventory from manufacturers across the United States. Considered a leading indicator of economic activity, consistently rising factory orders indicates an expanding economy and the possibility of rising inflation; consistently declining factory orders indicates a slowdown, or contraction, in economic activity. Based on a nationwide survey conducted by the U.S. Census Bureau, factory orders are divided into two major categories: durable goods orders and non-durable goods orders. Durable goods are goods that can be used for at least three years, such as cars, appliances, business equipment, and bricks. Non-durable goods includes food, clothing, tobacco and other consumer products.

The U.S. Department of Commerce issues two press releases each month based on the data collected for the factory orders report. The Advance Report on Durable Goods Manufacturers' Shipments, Inventories, and Orders, more commonly known as the durable goods report, is released about 18 working days after the end of each month. The complete factory orders report, officially known as the Manufacturers' Shipments, Inventories, & Orders report, is released about 23 days after the end of each month.

Furniture, such as a dining room table set, is one type of durable good.
Furniture, such as a dining room table set, is one type of durable good.

The U.S. Census Bureau collects data reported by manufacturers with $500 million or more in annual shipments. By definition, the manufacturing sector is made up of businesses that use chemical, mechanical, or physical means to transform materials, substances, or components into new products. The manufacturers may be units or divisions of larger corporations whose business is manufacturing particular types of products or product lines or manufacturers of goods in any one of 89 industry categories. The six-digit North American Industry Classification (NAICS) is used to categorize the data.

Factory orders is an indicator of economic conditions in the manufacturing sector.
Factory orders is an indicator of economic conditions in the manufacturing sector.

Based on the raw data from the Census Bureau, the U.S. Bureau of Economic Analysis (BEA) compiles and computes the factory orders series of economic indicators, including adjusting the data for seasonality. The BEA also uses this data to estimate Gross Domestic Product (GDP), the standard measure of the total output of goods and services in the U.S. economy. Factory orders data is also used by the Federal Reserve Board, the U.S. Department of Treasury, and the Council of Economic Advisers to formulate fiscal and monetary policy. The information is also used widely by economists, financial industry professionals, and investors in order to analyze current economic conditions and forecast future economic conditions, performance, and economic growth rates.

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    • Furniture, such as a dining room table set, is one type of durable good.
      By: Dmitry Pistrov
      Furniture, such as a dining room table set, is one type of durable good.
    • Factory orders is an indicator of economic conditions in the manufacturing sector.
      By: il-fede
      Factory orders is an indicator of economic conditions in the manufacturing sector.