August 03, 2010

Economics Group

Scott Anderson, Senior Economist

scott.a.andeson@wellsfargo.com ● 612-667-7871
Kim Whelan, Economic Analyst
kim.whelan@wellsfargo.com ● 704-715-8457

Factory Orders Drop in June

Factory Orders for June came in weaker than expected, dropping 1.2 percent. There were downward
revisions to the May data, suggesting a steeper slide in factory orders over the last two months.

Expect Further Slowing in Manufacturing Non-Durable Weakness Emerges

• Factory orders declined for a second consecutive month in
June, with material downward revisions for May, setting us up
for further deceleration in the U.S. manufacturing sector.
• Durable goods orders for June were revised down to a decline
of 1.2 percent from an originally reported 1.0 decline. Declines
were large for both transportation equipment and computer
and electronics.
• Non-durable goods orders decline 1.3 percent in June following a
2.7 percent decrease in May. Oil and coal orders lead the
declines here.
• Unintended inventory building may be taking place. Inventories
of durable goods increased 1.1 percent in June, the sixth month
of consecutive increases. Inventories of computers and
electronics products jumped 2.5 percent in June alone.

Manufacturers' New Orders Inventory to Shipments Ratio

3 Month Moving Average of Both Series Paper
30% 30% 1.35 1.35

20% 20% 1.30 1.30

10% 10%
1.25 1.25

0% 0%
1.20 1.20
-10% -10%
1.15 1.15
-20% -20%
1.10 1.10
-30% -30%

1.05 1.05
-40% -40%

-50% 3 Month Annual Rate: Jun @ 2.5% -50% 1.00 1.00

Year/Year Percent Change: Jun @ 14.3% Inventory To Shipment Ratio: Jun @ 1.01
-60% -60% 0.95 0.95
97 99 01 03 05 07 09 92 94 96 98 00 02 04 06 08 10

Manufacturers' Inventories - Durable Goods Inventory-to-Shipments Ratio

3 Month Moving Average of Both Series Durables Manufacturers
20% 20% 2.00 2.00
3 Month Annual Rate: Jun @ 11.2%
Year/Year Percent Change: Jun @ -2.6% 1.90 1.90
15% 15%

10% 10% 1.80 1.80

5% 5% 1.70 1.70

0% 0% 1.60 1.60

-5% -5% 1.50 1.50

-10% -10% 1.40 1.40

-15% -15% 1.30 1.30

Inventory/Shipments Ratio Durables: Jun @ 1.58

-20% -20% 1.20 1.20

93 95 97 99 01 03 05 07 09 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 diane.schumaker@wellsfargo.com

& Economics (212) 214-5070

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wellsfargo.com

Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wellsfargo.com
Jay Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wellsfargo.com
Scott Anderson, Ph.D. Senior Economist (612) 667-9281 scott.a.anderson@wellsfargo.com
Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 eugenio.j.aleman@wellsfargo.com
Sam Bullard Senior Economist (704) 383-7372 sam.bullard@wellsfargo.com
Anika Khan Economist (704) 715-0575 anika.khan@wellsfargo.com
Azhar Iqbal Econometrician (704) 383-6805 azhar.iqbal@wellsfargo.com
Ed Kashmarek Economist (612) 667-0479 ed.kashmarek@wellsfargo.com
Tim Quinlan Economist (704) 374-4407 tim.quinlan@wellsfargo.com
Kim Whelan Economic Analyst (704) 715-8457 kim.whelan@wellsfargo.com

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer
registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the
Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through
subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC,
and Wells Fargo Securities International Limited. The information and opinions herein are for general information use
only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does
Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any
such information or opinions. Such information and opinions are subject to change without notice, are for general
information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or
as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated
banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE