US factory orders increase in July despite supply constraints

[WASHINGTON] New orders for US-made goods rose in July, while business spending on equipment remained strong, signs that manufacturing was holding up despite persistent supply constraints and spending rotating back to services from goods.

The Commerce Department said on Thursday that factory orders increased 0.4 per cent in July after advancing 1.5 per cent in June. Economists polled by Reuters had forecast factory orders gaining 0.3 per cent.

Orders increased 18.0 per cent on a year-on-year basis. Though demand is shifting back to services, appetite for goods remain strong. This, together with an urgency by businesses to restock after inventories were run down in the first half of the year, should underpin manufacturing, which accounts for 11.9 per cent of the economy.

The Institute for Supply Management reported on Wednesday an unexpected pick-up in August even as manufacturers complained that labour and raw materials remained scarce.

The rise in factory goods orders in July was led by primary metals and machinery. But supply constraints depressed orders for computers and electronic products as well as those for electrical equipment, appliances and components. Orders for transportation equipment fell 2.1 per cent.

The Commerce Department also reported that orders for non-defence capital goods, excluding aircraft, which are seen as a measure of business spending plans on equipment, edged up 0.1 per cent in July instead of being unchanged as reported last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product (GDP) report, rose 0.9 per cent. Core capital goods shipments were previously reported to have advanced 1.0 per cent in July.

Business spending on equipment was robust in the second quarter, notching the fourth straight quarter of double-digit growth. That contributed to hoisting the level of GDP well above its peak in the fourth quarter of 2019.

REUTERS