AP News

Ahead of the Bell: US factory orders


WASHINGTON (AP) — Orders to U.S. factories likely rose only modestly in October, helped by a solid gain in demand for machinery and equipment that reflect business investment plans.

Economists expect that factory orders rose 0.2 percent in October following a 4.8 percent gain in September, according to a survey by FactSet.

The Commerce Department will release the report at 10 a.m. EST Wednesday.

The report will provide revised estimates for durable goods and the category of core capital goods, which are viewed as a good proxy for business investment plans. It will also provide an estimate for orders for non-durable goods, such as petroleum, chemicals and paper.

A preliminary report on long-lasting manufactured goods showed that orders that reflect business investment plans rose in October after sharp declines over the summer.

Businesses have been holding back on investment plans because they are worried about the "fiscal cliff." That's the name for sharp tax increases and federal spending cuts that will take effect in January if Congress and the Obama administration do not reach a budget deal by then to avert them.

In addition to worries about the fiscal cliff, businesses have grown more cautious about slower growth overseas and Europe's debt crisis. That has cut into U.S. exports and corporate profits.

U.S. manufacturing shrank in November to the weakest level since July 2009, according to a survey released Monday by the Institute for Supply Management. Worries about automatic tax increases in the New Year cut demand for factory orders and manufacturing jobs.

Consumers may also be getting nervous about higher taxes. Economists cited the fiscal cliff as a key reason consumer spending fell in October by the most since May.

When consumers cut back on spending, businesses typically reduce their pace of restocking. Both trends are expected to slow economic growth at the end of the year.

The economy grew from July through September at an annual rate of 2.7 percent, largely because of strong growth in inventories. Most economists predict growth is slowing in the current October-December quarter to a rate below 2 percent.

However, many economists believe growth will pick up in 2013 if Washington is able to resolve its budget dispute without inflicting serious harm on the economy.

Many economists believe that the economy will receive a boost from continued gains in housing construction and from stronger consumer spending that will reflect increases in employment.


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