Factory orders up for second straight month in July

Washington

NEW orders for US factory goods rose for a second straight month in July on strong demand for vehicles, which could help to keep manufacturing supported as it deals with a strong dollar and softening global demand.

The Commerce Department said on Wednesday that new orders for manufactured goods increased 0.4 per cent after an upwardly revised 2.2 per cent rise in June.

Factory activity has been hobbled by a strong dollar and spending cuts in the energy sector after last year's sharp plunge in crude oil prices. Tepid global demand is also hurting manufacturing, which accounts for about 12 per cent of the domestic economy.

A report on Tuesday showed the manufacturing industry braked to a more than two-year low in August, with some economists blaming the slowdown on the recent global stock market selloff.

Economists polled by Reuters had forecast factory orders rising 0.9 per cent in July after a previously reported 1.8 per cent increase in June.

The dollar has gained 16.8 per cent against the currencies of the United States' main trading partners since June 2014, which has undercut export growth and weighed on the profits of multinationals.

Orders for transportation equipment rose 5.5 per cent in July as bookings for motor vehicles and parts increased 4.0 per cent, the largest gain in a year. Orders for vehicles are likely to remain strong after sales surged in August.

In July, there were increases in orders for machinery, electrical equipment, appliances and components, and computers and electronic products.

The Commerce Department also said that orders for non-defence capital goods excluding aircraft - seen as a measure of business confidence and spending plans - increased 2.1 per cent instead of the 2.2 per cent rise 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, increased 0.6 per cent in July, unchanged from last month's estimate.

Inventories of factory goods slipped 0.1 per cent after three straight months of gains. That left the inventories-to-shipments ratio at a lofty 1.35, unchanged from June.

That suggests manufacturers might be sitting on a pile of unwanted goods, which could hurt production and weigh on growth in the coming quarters. Unfilled orders at factories rose 0.2 per cent, increasing for a second straight month.

In another report, the Labor Department said that non-farm productivity increased at its strongest pace in 1 1/2 years in the second quarter, keeping wage inflation subdued for now. The government revised productivity to show it rising at a 3.3 per cent annual rate, the quickest since the fourth quarter of 2013, instead of the 1.3 per cent pace reported last month.

Productivity contracted at a 1.1 per cent rate in the first quarter. The government last week revised second-quarter GDP to show it expanding at a 3.7 per cent annual pace instead of the 2.3 per cent rate it had initially estimated. But the trend in productivity remains weak.

Productivity rose 0.7 per cent from a year ago instead of the 0.3 per cent increase reported last month. Growth in productivity is an important determinant of the economy's non-inflationary speed limit. Though the second-quarter bounce back is dampening wage pressure for now, the weak trend in productivity suggests the economy's growth potential could be lower than the 1.5 per cent to 2.0 per cent pace that economists have been estimating. REUTERS