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 The Commerce Department said on Tuesday that non-transportation
orders gained 0.2 percent last month after rising 0.3 percent in
November and 0.1 percent in October.
The gain suggested the factory sector was positioned to withstand
what appears to be partly a weather-related slowdown. A report on
Monday showed factory activity dived to an eight-month low in
January, spooking investors.
"Manufacturing will expand at roughly the same pace as the overall
economy in 2014," said Gus Faucher, a senior economist at PNC
Financial Services in Pittsburgh. "Consumers are gradually
increasing their spending, business investment is picking back up
again, supporting spending on capital goods."
Overall factory orders, however, dropped 1.5 percent, the largest
fall since July, weighed down by a plunge in bookings for
transportation equipment. New orders increased 1.5 percent in
November and economists had expected a 1.7 percent drop.
Transportation orders are notoriously volatile, and economists
frequently strip them out to get a better view of underlying trends.
New orders for transportation equipment tumbled 9.7 percent last
month, the largest drop since July, after increasing 8.1 percent in
November. Non-defense aircraft and parts orders fell 17.5 percent,
while orders for motor vehicles fell by 1.5 percent, the most in
five months.
Helping to take the sting out of the decline, orders for non-defense
capital goods excluding aircraft — seen as a measure of business
confidence and spending plans — fell only 0.6 percent, less than
half of what the government said last week.
Order backlogs also continued their steady rise, reaching their
highest level since the government started tracking them in 1992.
"Today's report shows slightly less weakness in the underlying
trend," said Tim Quinlan, an economist at Wells Fargo Securities in
Charlotte, North Carolina.
SLOWDOWN FEARS
The report on Monday from the Institute for Supply Management had
shown the largest drop in orders in more than 30 years. That helped
ignite fears of a cooling in manufacturing and hit stocks hard. The
sector makes up about 12 percent of the economy and has been one of
the main pillars of growth.
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Economists said the ISM data, which is based on a sentiment survey,
had been running very strong relative to so-called hard data such as
industrial production and the government's gauge of orders.
The latest data helped narrow that gap, while showing the sector
still poised for expansion, Quinlan said.
"Growth continues at a moderate pace, underscored by the recent
trend of core orders," he said.
Factory output grew at its fastest rate in nearly two years in the
fourth quarter and some slowdown is expected this quarter as
businesses hold the line on inventories after rapidly accumulating
stocks in the second half of last year.
That will help hold back economic growth after a brisk 3.7 percent
annual pace of expansion in the last half of 2013.
There is little sign, however, that an inventory correction is
looming. In December, inventories at the nation's factories
increased 0.5 percent after nudging up 0.1 percent in November.
"Though inventory investment contributed importantly to GDP growth
in 2013, there is no evidence that inventory accumulation in the
factory sector has been excessive as the inventory-to-shipment ratio
has essentially been flat over the last two and a half years," said
John Ryding, chief economist at RDQ Economics in New York.
The inventory-to-shipment-ratio was a still-lean 1.29 in December,
up from 1.28 in November.
(Reporting by Lucia Mutikani; editing by
Tim Ahmann and Paul Simao)
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