February factory orders rose 3%, and January's level was revised upwards by 1%. Orders are now at a new all-time high, and have risen 2.7% in the past year. Factory orders last summer were quite weak, but they have now rebounded convincingly, thus removing one of the few sources of doubt about the economy's ability to continue to grow. Even after excluding defense orders (see chart above), orders are up 3.8% in the past two months and 3% in the past year. Slowly but surely, the economy continues to improve on the margin.
In this next chart I've added the S&P 500 index, which has had a pretty good correlation with the changes in factory orders. I think this shows that the stock market is on much firmer ground these days than it was at its 2000 peak. Back then, equity valuations had clearly overshot the fundamentals. Today, equity valuations are improving very much in line with improvement in the underlying economic fundamentals. The recovery and the rally are for real.
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