US factory orders surge, but business spending on equipment slowing

[WASHINGTON] New orders for US-made goods increased more than expected in January, pointing to a sustained recovery in manufacturing even as the pace of business spending on equipment is slowing.

The Commerce Department said on Thursday that factory orders shot up 2.6 per cent after rising 1.6 per cent in December. Economists polled by Reuters had forecast factory orders advancing 2.1 per cent in January.

Orders increased 1.3 per cent on a year-on-year basis.

Manufacturing, which accounts for 11.9 per cent of the US economy, has been driven by strong demand for goods, like electronics and furniture as 23.2 per cent of the labour force works from home because of the virus. Demand could, however, shift back to services in the summer as more Americans get vaccinated, and slow manufacturing activity from current levels.

A global semiconductor chip shortage, which on Wednesday forced General Motors to extend production cuts at its plant in Fairfax, Kansas, could slow momentum. But the outlook for manufacturing remains solid, with the Institute for Supply Management's index of national factory activity rising to a three-year high in February.

Factory goods orders in January were boosted by strong demand for electrical equipment, appliances and components, as well as primary metals and fabricated metal products. But orders for machinery fell.

Unfilled orders at factories edged up 0.1 per cent in January after decreasing 0.2 per cent in December.

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, increased 0.4 per cent in January instead of 0.5 per cent as reported last month.

Shipments of core capital goods, which are used to calculate business equipment spending in the GDP report, rose 1.8 per cent. They were previously reported to have surged 2.1 per cent in January.

Business spending on equipment increased robustly for a second straight quarter in the fourth quarter, contributing to the economy's 4.1 per cent annualised growth rate during that period.

REUTERS