Factory orders in U.S. decrease by the most in five months

Orders to U.S. factories fell in January by the most in five months, weighed down by a slump in demand for military hardware and commercial aircraft.

Bookings dropped 2% after a revised 1.3% increase in December, Commerce Department data showed today in Washington. Economists projected a 2.2% decline, according to the median forecast in a Bloomberg survey. Demand for durable goods decreased 4.9%, little changed from the 5.2% drop estimated last week, while non-durables climbed 0.6% on gains in petroleum and chemicals.

The biggest jump in machinery including construction equipment and generators in almost five years is helping boost manufacturing. A pickup in business spending indicates companies are looking beyond the fiscal-policy battles in Washington as sales improve.

“Manufacturing is looking a bit stronger than it was in the second half of last year,” Robert Mellman, senior economist at JPMorgan Chase & Co. in New York, said before the report. “Housing is going gangbusters, other parts of the economy are doing better, and the inventory cycle has turned positive. Foreign demand in some places might start to pick up.”

Estimates of 63 economists ranged from declines of 0.5% to 4.5%. The Commerce Department revised the December figure from an initially estimated 1.8% gain.

Excluding transportation equipment, factory orders rose 1.3% in January after a 0.1% drop the prior month. Boeing Co., the Chicago-based aerospace company, said it received two orders in January, down from 183 the prior month. Boeing is contending with safety concerns related to batteries on its 787 Dreamliner.

Military Orders

Orders for military capital goods slumped 69.7% after jumping 107.2% in December, today’s report showed. Excluding defense, bookings rose 0.3% in January after declining 0.2% the prior month.

While these orders are volatile month to month, they highlight the risk that across-the-board federal budget cuts, known as sequestration, represent for the world’s largest economy. About $1.2 trillion in reductions over the next decade began taking effect at the start of March.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, advanced 7.2%, the biggest gain since September 2004, after falling 0.8% in December. The gain was revised up from the 6.3% increase reported in last week’s durable goods report.

Shipments of such equipment, which are used in calculating gross domestic product, decreased 1.1% after a 0.1% gain the prior month.

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