Bloomberg News

Orders to U.S. Factories Rise on Demand for Cars, Aircraft

February 03, 2012

Feb. 3 (Bloomberg) -- Orders to U.S. factories increased in December for a second month, a sign manufacturing will strengthen even more.

Bookings rose 1.1 percent after a revised 2.2 percent gain in November that was larger than previously estimated, figures from the Commerce Department showed today in Washington. The order backlog jumped 1.4 percent, the most since March 2008.

Factories boosted payrolls in January by the most in a year and the number of hours worked per week climbed to the highest in 14 years, according to Labor Department figures today, showing how the need to rebuild inventories and replace outdated equipment will keep American industry humming. Nonetheless, a slowdown in Europe may limit gains in exports, representing a risk to American manufacturers.

“Manufacturing is doing quite well,” Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “Going forward, the year is off to a decent start in the manufacturing sector, but we need to make sure that orders continue to come in with the strength that we’ve seen in the last couple of months.”

Economists forecast factory orders would rise 1.5 percent, according to the median of 64 projections in a Bloomberg News survey. Estimates ranged from declines of 1 percent to gains of 2.5 percent. The Commerce Department revised the November gain up from a previously estimated 1.8 percent increase.

Employment climbed more than forecast in January and the jobless rate unexpectedly fell to the lowest in three years, the Labor Department’s report also showed today.

Payrolls Jump

The 243,000 increase in payrolls was the biggest since April and exceeded all forecasts in a Bloomberg News survey. The unemployment rate dropped to 8.3 percent, the lowest since February 2009.

The factory workweek climbed to 41.9 hours, the most since 1998, and overtime also increased.

Orders for goods meant to least at least three years increased 3 percent, the Commerce Department report showed. The reading was the same as the government estimated in a Jan. 26 report.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, climbed 3.1 percent after falling 1.5 percent in November. The gain was larger than estimated last week.

Shipments of such equipment, which are used in calculating gross domestic product, also increased 3.1 percent after a 0.9 percent drop in November.

More Shipments

Some of the shipment gains may reflect businesses using their last chance to qualify for a government tax credit that allowed for 100 percent depreciation on equipment purchases. The allowance this year dropped to 50 percent.

Business investment remained a bright spot for the world’s largest economy last quarter. Corporate spending on equipment and software rose at a 5.2 percent annual rate from October through December. While down from the prior period’s 16 percent gain, today’s report indicates it will rebound early this year.

Bookings for non-durable goods, including petroleum and chemicals, fell 0.4 percent, today’s report showed.

Factory inventories climbed 0.1 percent in December, and manufacturers had enough goods on hand to last 1.33 months at the current sales pace, down from 1.34 the prior month.

While weaker demand from Europe and China could slow factory lines, manufacturing has continued to boost production. The Institute for Supply Management’s factory index rose in January to the highest level in seven months.

Factory Hiring

Paccar Inc., the maker of Kenworth and Peterbilt trucks, said it estimates U.S. and Canadian truck sales will rise by around 14 percent in 2012. The Bellevue, Washington-based company’s “customers are feeling better than they did a few years ago,” and businesses that produce components for other manufacturers are ‘feeling a little bit better as they go into 2012,” said Chief Executive Officer Mark Pigott.

“I think that challenges of probably last summer and early fall where many suppliers were just still not convinced that this market was going to continue, they’ve now probably mostly come to the realization that the market looks to be pretty good,” Pigott said in a Jan. 31 conference call.

Vehicle demand should also drive production. Cars and light trucks sold at a 14.1 million annual rate last month, according to industry data. Excluding a surge in August 2009 that reflected the government’s “cars-for-clunkers” program, it was the strongest month since May 2008.

--With assistance from Chris Middleton in Washington. Editor: Carlos Torres

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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