AP News

Ahead of the Bell: US Factory Orders

WASHINGTON (AP) — A government report Wednesday is expected to confirm that businesses stepped up orders in January for machinery and other factory goods that signal investment, indicating confidence in the economy.

A preliminary report last week showed a 6.3 percent increase in orders for so-called core capital goods, which also include equipment and computers. It was the biggest one-month gain in more than a year for the category.

Economists expect total factory orders fell 2.2 percent in January from December, according to a survey by FactSet. But that's mostly because of a steep drop in volatile aircraft orders that was also captured in last week's durable goods report.

The Commerce Department will report on January factory orders at 10 a.m. EST Wednesday. The report will include a revised estimate for durable goods, which are expected to last at least three years, and an estimate for non-durable goods, which include clothing and food.

Economists pay close attention to core capital goods because they are a good measure of business investment plans. The category excludes aircraft and military orders, which can fluctuate sharply from month to month.

An increase would suggest companies kept expanding their production capacities in January, even as automatic government spending cuts loomed. The cuts started to take effect on March 1.

A separate report last week showed manufacturing grew in February at the fastest pace since June 2011. The report from the Institute for Supply Management said growth was bolstered by gains in new orders and production.

The automatic spending cuts could force the Defense Department and other agencies to trim their budgets for this year. That could result in reductions in federal purchases of manufactured goods, which threaten to slow factory growth and the broader economy.

In addition, consumers may be more cautious about making large purchases as they adjust to higher taxes. In January, Social Security taxes rose for nearly all Americans who draw a paycheck and income taxes increased on the highest earners.

Still, recent reports indicate steady job growth and a strengthening housing recovery could offset some of the impact of the tax increases and spending cuts.

The economy created an average of 200,000 jobs per month from November through January, up from 150,000 the previous three months. The Labor Department issues its February employment report Friday.

Consumer confidence rose in February and service companies experienced their best growth in a year, according to private surveys.

The overall economy grew at an annual rate of 0.1 percent in the October-December quarter, reflecting in part less restocking by businesses and a sharp drop in defense spending. Economists believe growth will rebound to around 2 percent in the current quarter.

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