New orders received

What Are New Orders Received?

New orders received refer to the total value of new purchase agreements accepted by manufacturers for goods and services during a specific period. As a key economic indicator, this metric provides a forward-looking perspective on the health of the manufacturing sector and the broader economy. It reflects the future production commitments of businesses and helps analysts gauge the strength of consumer and business demand. An increase in new orders received generally signals an expansion in economic activity, while a decline may suggest a slowdown. This data is critical for understanding business cycles and making informed economic forecasts.

History and Origin

The systematic collection of data on new orders received in the United States dates back decades, with the U.S. Census Bureau playing a pivotal role. The primary source for this information is the Manufacturers' Shipments, Inventories, and Orders (M3) survey. This monthly survey was established to provide comprehensive statistical data on the domestic manufacturing sector, helping to measure current industrial activity and offer insights into future business trends. The M3 survey collects data from manufacturing establishments across various industries, contributing to a vital understanding of the nation's economic pulse. The U.S. Census Bureau continues to release this data monthly, with periodic revisions to ensure accuracy based on more comprehensive annual surveys and economic census data⁵.

Key Takeaways

• New orders received measure the total value of new purchase agreements placed with manufacturers.
• This metric is a leading economic indicator, offering insight into future production and economic activity.
• An increase in new orders generally signals growing demand and economic expansion.
• Data on new orders received is primarily collected and published by government statistical agencies, such as the U.S. Census Bureau.
• It is a crucial component for economists, policymakers, and businesses in assessing market conditions and making strategic decisions.

Interpreting New Orders Received

The interpretation of new orders received involves analyzing their month-over-month and year-over-year changes, as well as considering the broader economic context. A consistent increase in new orders suggests robust demand from consumers and businesses, indicating a healthy economy and potential for increased shipments and production in the future. Conversely, a sustained decline can signal weakening demand, a potential slowdown, or even a contraction in economic activity.

Analysts often break down new orders by sector (e.g., durable goods versus non-durable goods) because durable goods orders, especially those for capital goods, can be particularly indicative of business investment and capital expenditures. Furthermore, the ratio of new orders to inventories can offer insights into the balance between supply and demand. Economists and investors closely monitor this data as an early signal for shifts in the overall economy.

Hypothetical Example

Imagine "MegaCorp Manufacturing," a diversified company that produces industrial machinery and consumer electronics components. In a given month, MegaCorp receives the following new orders:

• Industrial Machinery Division: $50 million in new orders for factory automation equipment.
• Consumer Electronics Components Division: $30 million in new orders for microchips from various electronics manufacturers.

To calculate the total new orders received for MegaCorp Manufacturing for that month, one simply sums the values from all divisions:

Total New Orders Received = $50 million (Industrial Machinery) + $30 million (Consumer Electronics Components) = $80 million.

This $80 million figure represents the total value of new business commitments MegaCorp secured during the month. If the previous month's total was $70 million, the increase to $80 million indicates growing demand for MegaCorp's products, potentially leading to increased production and future revenues. This hypothetical example illustrates how such figures are aggregated and how changes can signify trends in business performance and the broader supply chain.

Practical Applications

New orders received data serves as a critical tool across various financial and economic domains:

• Economic Analysis: Government agencies, central banks, and private economists use this data as a leading indicator to assess the strength of the economy and anticipate changes in Gross Domestic Product (GDP). For instance, the Federal Reserve Bank of St. Louis provides extensive data series on manufacturing new orders, which are closely watched by analysts⁴.
• Investment Decisions: Investors and portfolio managers monitor new orders to gauge the outlook for specific industries or the broader market. A strong trend in new orders can signal potential growth for manufacturing companies, influencing investment strategies.
• Business Planning: Businesses use aggregate new orders data to forecast demand, manage inventories, and plan future production levels. For example, a Reuters report on U.S. durable goods orders can provide valuable insights for manufacturers planning their operations³.
• Policy Making: Policymakers rely on new orders data to inform decisions related to monetary policy and fiscal policy, aiming to stimulate or cool down economic activity as needed.
• Purchasing Managers' Index (PMI): The new orders component is a significant part of the Purchasing Managers' Index (PMI), a composite indicator that reflects the health of the manufacturing sector. The Institute for Supply Management (ISM) regularly releases PMI reports, including insights into new orders².

Limitations and Criticisms

While new orders received data is a valuable economic indicator, it is not without limitations:

• Volatility: The data can be quite volatile month-to-month, especially for durable goods, which include large, infrequent orders like aircraft or heavy machinery. This volatility can make it challenging to discern underlying trends without looking at smoothed averages or longer periods.
• Revisions: Initial estimates of new orders received are often subject to significant revisions in subsequent months as more complete data becomes available¹. These revisions can sometimes alter the initial interpretation of economic conditions.
• Lagging Information: Although often considered a leading indicator, the data itself is historical. It reflects orders received in the past month, not current real-time activity.
• Cancellations: The "new orders received" metric is typically reported net of cancellations. However, unforeseen events or changing economic conditions can lead to higher-than-usual cancellations that might not be fully reflected in initial reports or might still impact future production plans even if netted out.
• Qualitative Factors: The data provides quantitative insights but does not explain the reasons behind changes in orders. For example, an increase could be due to genuine demand, or it could be a result of companies pre-ordering to avoid anticipated inflation or supply chain disruptions, which requires deeper qualitative analysis.

New Orders Received vs. Unfilled Orders

New orders received and unfilled orders are two distinct but related economic metrics that provide different perspectives on manufacturing activity. New orders received represent the total value of new business that manufacturers have booked during a specific period. It is a measure of fresh demand and future production commitments for that period. In contrast, unfilled orders (also known as order backlogs) represent the total value of orders that have been received by manufacturers but have not yet been shipped or completed. This accumulated backlog reflects the work that manufacturers still need to perform. While new orders indicate the inflow of new business, unfilled orders provide insight into the pipeline of work ahead. A rising backlog of unfilled orders, especially when new orders are also strong, suggests that manufacturers are operating at or near capacity and have a healthy stream of future revenue.

FAQs

What does "new orders received" tell us about the economy?

New orders received serve as a forward-looking indicator, signaling the health of the manufacturing sector and broader economic demand. An increase typically suggests economic expansion, while a decrease may indicate a slowdown. It helps in assessing the strength of demand from consumers and businesses.

How often is data on new orders received released?

In the United States, the U.S. Census Bureau typically releases data on new orders received on a monthly basis as part of its Manufacturers' Shipments, Inventories, and Orders (M3) survey. These releases are closely watched by economists and financial markets.

Are new orders received a leading or lagging indicator?

New orders received are generally considered a leading indicator because they reflect future production activity. When manufacturers receive more new orders, it implies they will likely increase production in the coming months, which precedes actual changes in output or employment.

What's the difference between durable and non-durable goods new orders?

Durable goods are products designed to last for three years or more, such as vehicles, machinery, and electronics. New orders for these items tend to be more volatile and are often seen as a key indicator of business investment and consumer confidence. Non-durable goods are products with a shorter lifespan, like food, clothing, and chemicals; their new orders tend to be steadier.