Factory orders rise 0.9 percent in September
The fifth increase in six months bolstered hopes that a revival in manufacturing will help support an overall economic recovery. The worry is that if consumer spending falters in coming months, orders will slump again.
The Commerce Department said Tuesday that orders rose 0.9 percent in September, slightly better than the 0.8 percent gain economists had expected. Demand increased for both durable goods, and nondurable goods such as chemicals and energy products.
New orders for durable goods, items expected to last at least three years, advanced 1.4 percent, better than the 1 percent estimate the government made last week.
Demand for heavy machinery jumped 7.9 percent, the biggest gain in 18 months. There also was strong demand for military aircraft, which helped offset a second straight drop in orders for commercial airplanes.
Orders for nondurable goods rose 0.6 percent following a 0.9 percent increase in August, led by petroleum, chemicals and food products.
Joshua Shapiro, chief U.S. economist at MFR Inc. in New York, noted that orders for non-defense capital goods excluding aircraft — a good proxy for business investment plans — posted a solid 1.8 percent rise in September after two straight declines.
"Much of this is related to a need to stabilize inventories after savage liquidation in the first half of the year," Shapiro wrote in a note to clients. "Today's reported gain for September puts things back on track after the disappointing results recorded in the preceding two months."
The better-than-expected reading for factory orders followed a report Monday from the Institute for Supply Management that its gauge of manufacturing activity grew in October at the fastest pace in more than three years.
The ISM index rose to 55.7 in October, the third straight reading above 50, which signals growth in the sector. Businesses' replenishing stockpiles, higher demand for American exports and support from the government's $787 billion stimulus program led the advance.
But with jobs scarce, lending tight and consumers wary of spending, it's unclear whether the gains can be sustained as government stimulus programs wind down.
Factory orders were valued at a seasonally adjusted $356.1 billion in September. But through the first nine months of the year, orders are 21.7 percent below the pace of 2008, underscoring the severity of the recession.
The government reported last week that the overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 percent in the July-September quarter, the first growth after a record four straight declines. Economists said that was the strongest signal to date that the recession, which began in December 2007, was ending.
Still, unemployment likely will keep rising amid a sluggish recovery. The jobless rate hit a 26-year high of 9.8 percent in September and is expected to rise to 9.9 percent when the October report is released Friday. Many analysts believe the jobless rate will top 10 percent by the end of this year and will not peak until next summer.
The ISM, a trade group of purchasing executives, said the October index showed manufacturing employment grew for the first time in 15 months, rising to 53.1 last month from 46.2. But the measure tracking new orders, a signal of future production, slipped in September.
Farm and construction equipment makers Deere & Co. and Caterpillar Inc. said last week they each were adding back a few hundred jobs, and Kemet Corp., which makes parts for electric drive vehicles and alternative energy markets, is adding 113 jobs in South Carolina because of a $15.1 million grant from the Department of Energy that is enabling it to transfer some manufacturing from Europe to the U.S.
But layoffs continue. Sun Microsystems Inc. said in October it plans to eliminate up to 3,000 jobs before it's acquired by Oracle Corp.
In October, the ISM said 13 of the 18 manufacturing industries surveyed expanded, led by petroleum and coal production, apparel and furniture. Three industries shrank.