Tim Quinlan, Economic Analyst

tim.quinlan@wachovia.com ● 704-374-4407

January 06, 2009

Factory Orders Shed Another 4.6 Percent as Business Spending Cools

Orders at U.S. factories declined by another $18.7B in November – the fourth consecutive monthly drop. These
declines indicate an even worse scenario for business spending than many initially feared. The collapse in prices of
commodity-related goods is exacerbating already weak orders data for nondurable goods.
Businesses in Full-on Cost Cutting Mode not Just Paring Back Manufacturers' New Orders
November’s decline of 4.6 percent in factory orders marks the fourth 20%
Year-over-Year Percent Change
20%
consecutive monthly decline and is a particularly troubling sign for fourth
quarter business spending. In past cycles, a tough month for orders would
typically be followed by some reprieve in subsequent months. We have 10% 10%

stated previously that this recession will be the worst since the early 1980s,
and we find the last time that orders declined four or more consecutive
0% 0%
months was in that era. From August through December of 1981 orders
contracted each month, but those declines were fairly modest compared to
the drop-off in orders we are seeing today. The largest decline of the four -10% -10%

months in 1981 was a decline of 2.3 percent. The smallest decline of the
last four months was September’s decline of 3.1 percent. We have been Manufacturers New Orders: Nov @ -12.2%

calling for a contraction in fourth quarter business spending on the order of -20% -20%
97 98 99 00 01 02 03 04 05 06 07 08
12 percent, it now appears that may prove optimistic.
When it Rains, It Pours Nondurable Goods' New Orders
3 Month Moving Average of Both Series
Oil, gasoline and other commodities peaked in the summer and have been 40% 40%

trending downward since. While that has provided a welcome respite at 30% 30%

the pump for consumers, it is making the data appear worse in an already 20% 20%

weak business spending environment. Even if the total volume of orders 10% 10%
were unchanged, if the price of each unit is lower the result is a decline in
0% 0%
the value of orders. This is most evident in orders for nondurable goods,
-10% -10%
where price declines are more readily apparent. November’s decline of 7.4
percent for nondurable goods orders is the largest monthly decline on -20% -20%

record since the series was re-stated by the Department of Commerce in -30% -30%

1992. -40% 3 Month Annual Rate: Nov @ -40.4% -40%

Year/Year Change: Nov @ -1.5%
Non-Defense Capital Goods Orders Ex-Aircraft -50% -50%

One glimmer of hope in this otherwise grim report is the increase in non- 93 95 97 99 01 03 05 07

defense capital goods orders ex-aircraft. This series is generally considered New Orders Non-Defense Capital Goods Ex-Aircraft
to be representative of business spending and it posted a solid gain of 3.9 Series are 3 Month Moving Averages
40% 40%
percent in November. Unfortunately there was a negative revision from
the 4.7 percent gain first reported in the Durable Goods report published at
the end of December. 20% 20%

Business Spending Outlook Looking Weaker

While we would not rule out an increase in orders in coming months, such 0% 0%
a gain would likely be attributed to payback rather than a sign of strength.
The inventory-to-shipments ratio has climbed from 1.26 to 1.41 since
August, suggesting an unintended inventory build. Business owners -20% -20%

appear to be in lockdown until they see signs of recovery. “Wait and see”
3 Month Annual Rate: Nov @ -28.0%
are dangerous words for business spending. Year/Year Percent Change: Nov @ -3.4%
-40% -40%
93 95 97 99 01 03 05 07

Wachovia Corporation Economics Group publications are distributed by Wachovia Corporation directly and through subsidiaries including, but
not limited to, Wachovia Capital Markets, LLC, Wachovia Securities, LLC and Wachovia Securities International Limited.
The information and opinions herein are for general information use only. Wachovia does not guarantee their accuracy or completeness, nor
does Wachovia 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. © 2009Wachovia Corp.