AP News

Ahead of the Bell: US factory orders

WASHINGTON (AP) — Orders to U.S. factories likely showed a gain in February despite a drop in demand for a key category that signals business investment spending.

Economists expected factory orders rose 1.8 percent in February, compared to January, according to a survey by FactSet. The Commerce Department will release the report at 10 a.m. EDT Tuesday.

In January, factory orders fell 2 percent but that decline was mostly due to a steep fall in volatile aircraft and defense orders.

A preliminary report last week showed that demand for durable goods, jumped 5.7 percent in February, the biggest monthly gain in five months. That strength reflected a surge in demand for commercial aircraft.

The estimate for durable goods, items from airplanes to refrigerators expected to last at least three years, will be revised and the government will also make an estimate of the change in demand for nondurable goods, items from food and paper to chemicals and gasoline.

In the preliminary report, demand for core capital goods, a category viewed as a proxy for business investment spending, fell 2.7 percent in February from January. The decline followed a 6.7 percent surge in January which had been the biggest one-month gain in nearly three years.

Analysts said averaging the big swings in January and February in business investment orders showed solid demand they expect to see continue even with the uncertainty surrounding the impact of the government's tax and spending policies.

Higher Social Security taxes went into effect on Jan. 1 which mean less take-home pay for most working Americans. A worker making $50,000 annually will pay $1,000 more in Social Security taxes this year.

In addition, high income workers got hit with an increase in their tax rates starting Jan. 1 and $85 billion in automatic spending cuts began taking effect on March 1.

The Congressional Budget Office has estimated that the combination of higher taxes and spending cuts will trim overall economic growth by 1.5 percentage points this year. The CBO is estimating the economy will grow 1.5 percent this year.

The Institute for Supply Management reported Monday that U.S. manufacturing activity expanded more slowly in March than February, held back by weaker growth in production and new orders.

But factories did hire at the fastest pace in nine months, which was seen as an encouraging sing ahead of Friday's report on employment in March.

The institute's manufacturing index slipped to 51.3 in March, down from a reading of 54.2 in February, which had been the strongest performance since June 2011. A reading above 50 indicates expansion in the manufacturing sector.

Some analysts said that the March slowdown might be the first sign that companies are worried about the federal spending cuts that took effect on March 1.

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