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US Factory Orders Show Largest Gain in Seven Months

Orders for U.S. factories turned positive for the first time since October, a sign that the yearlong manufacturing decline may be ending.

New bookings for manufactured goods rose 1.6 percent in January after falling 2.9 percent in December. It was the largest addition to order books since placements rose 2.2 percent last June. Economists had predicted a 2.1 percent gain.

However, orders excluding those of the transport sector, in practice largely the civilian airliner business of Boeing Co. of Chicago, fell 0.2 percent, the third drop in a row and the fifth decline in the last six months.  Transportation orders jumped 11.4 percent.

Annual orders in both categories continued their more than yearlong declines.

Overall factory orders dropped 1.9 percent, less than the 3.9 percent drop in December. These orders began to fall in November 2014, reached bottom in July last year at -14.9 percent and have been recovering since then. January’s decline was the smallest since the 15 month string began at -1.5 percent in November 2014. 

Factory orders outside of transportation fell 3.5 percent in January, the 14th monthly decline in row though the smallest since the plunge began in December 2014. 

Manufacturing activity which accounts for about 12 percent of gross national product, has been eroded by the strong dollar over the past 18 months and weak global demand, which have cut into exports. The collapse in crude oil provoked large capital spending cuts by energy exploration firms in the United States shale oil fields.  Business efforts to reduce inventory build has also inhibited order to factors.

Durable goods orders, which are a part of factory output and are issued first by the Commerce Department, were revised today as part of the factory orders release.

Overall durable goods orders in January were reduced to 3.4 percent from the original 3.9 percent. Orders ex-transport dropped to 1.7 percent from 1.8 percent. Capital goods orders non-defense ex aircraft, a proxy for business spending fell to 3.4 percent from the initial reading of 3.9 percent.  Shipments of these capital goods, which is used to calculate GDP were unchanged a -0.4 percent. 

Inventories of factory goods dropped for the seventh month in a row indicating that firms are having some success in reducing the production overhang, though it remains near cycle highs. Lower inventories are a necessity if orders to factories form wholesalers and retailers are to pick up.  

The ration of inventories-to-shipments fell slightly to 1.36 in January down from 1.37 in December.

Unfilled orders rose 0.1 percent in January, the third increase in the last four months. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

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