Bloomberg News

Factory Orders in U.S. Decrease on Pullback in Aircraft

May 02, 2012

An employee assembles a water filter at the Sun Water Systems Inc. manufacturing facility in Fort Worth, Texas. Photographer: Mike Fuentes/Bloomberg

An employee assembles a water filter at the Sun Water Systems Inc. manufacturing facility in Fort Worth, Texas. Photographer: Mike Fuentes/Bloomberg

Orders to U.S. factories decreased in March, restrained by a pullback in demand for aircraft that overshadowed gains elsewhere.

Bookings fell 1.5 percent after a revised 1.1 percent gain in February, figures from the Commerce Department showed today in Washington. The median projection of 61 economists in a Bloomberg News survey called for a 1.6 percent decline. Turbines and household appliances were among areas showing increases.

The report comes a day after purchasing managers said manufacturing expanded in April at the fastest pace in almost a year as orders, production and employment picked up, indicating the slump may be short-lived. Exports and consumer spending on big-ticket items like automobiles may be making up for a cooling in business investment, which means factories will continue to support the expansion.

“Manufacturing is still leading the recovery,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Philadelphia, who correctly projected the drop in orders. “Businesses are going to continue to invest. The manufacturing sector is going to continue to expand.”

Economists’ estimates in the Bloomberg survey ranged from a decline of 3 percent to little changed. The Commerce Department revised the February figure from a previously estimated 1.3 percent increase.

Payroll Estimate

A report today from Roseland, New Jersey-based ADP Employer Services showed companies added 119,000 workers to payrolls in April, fewer than the 170,000 median forecast of economists surveyed by Bloomberg. ADP’s initial figures for March showed a gain of 209,000, while the Labor Department said companies added 121,000 workers.

Stocks fell on the smaller-than-projected gain in ADP’s payroll estimate. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,395.11 at 10:23 a.m. in New York.

Factory orders minus transportation equipment rose less than 0.1 percent in March, the sixth increase in seven months, the Commerce Department report showed.

Orders for transportation equipment dropped 13 percent, led by a 48 percent plunge in demand for commercial planes.

Raising Production

Boeing Co. said it received orders for 53 planes in March after demand surged to 237 a month earlier. The world’s biggest aerospace company said last week it posted a first-quarter profit that beat analysts’ estimates and raised its 2012 forecast as it delivered more commercial jets while pushing production to record levels. The Chicago-based company is boosting output by more than 60 percent in the four years through 2014 to pare a record order backlog.

Bookings for durable goods, those meant to least at least three years, fell 4 percent in March, less than the 4.2 percent decline the government estimated in an April 25 report, today’s report showed. Demand for non-durable goods, including petroleum, increased 0.5 percent in March for a second month.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, dropped 0.1 percent after rising 2.7 percent in February. The Commerce Department last week estimated the March decrease at 0.8 percent.

Shipments of such equipment, which are used in calculating gross domestic product, increased 2.6 percent after a 1.5 percent advance in February.

Growth Slows

The world’s largest economy grew at a 2.2 percent annual rate in the first quarter after expanding at a 3 percent pace in the last three months of 2011, a Commerce Department report showed last week. A 1.7 percent gain in business investment on new equipment, the smallest increase of the expansion that began almost three years ago, limited the advance.

Factory inventories rose 0.3 percent in March, and manufacturers had enough goods on hand to last 1.33 months at the current sales pace, the same as in February.

A 0.4 percent increase in unfilled orders for non-military capital goods excluding aircraft in March may be one reason why the purchasing managers report yesterday showed production picked up in April.

The Institute for Supply Management’s factory index rose to 54.8 from 53.4 in March, the Tempe, Arizona-based group said yesterday. Readings above 50 signal growth.

“While North America demand was strong in the first quarter compared to a year ago, we are seeing a few signs of weakness in recent order intake,” Pat Ward, chief financial officer at Cummins Inc. (CMI:US), said yesterday on an earnings call in reference to the company’s power generation unit.

Auto Demand

Improving demand for autos is underscoring the strength in manufacturing. Cars and light trucks sold at a 14.38 million annual rate last month after a 14.32 million pace in March, according to industry data. Auto sales have exceeded a 14 million annual pace in each of the past four months, marking the best performance since early 2008.

Dow Chemical Co. Chief Executive Officer Andrew Liveris last week said global demand for Dow’s products improved through the first quarter as the U.S., Germany and other developed economies more than made up for lower-than-expected sales in China. Dow is seeing “positive signs” in transportation, construction, electronics and manufacturing, he said in an April 26 interview.

“March showed quite a lot of strength compared with February,” Liveris said. “The momentum continues” into the second quarter, he said.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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


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