Orders to U.S. factories climb on demand for autos, planes

Orders placed with U.S. factories increased in February, boosted by a pickup in demand for motor vehicles and commercial aircraft.

The 3% gain in bookings, the biggest in five months, followed a revised 1% decline in January, a Commerce Department report showed today in Washington. The median forecast of 64 economists in a Bloomberg survey called for a 2.9% rise. The advance was led by a 5.6% surge in demand for durable goods that was little changed from the 5.7% estimate issued last week.

Auto sales that are on pace for the best year since 2007 and gains in home construction are helping drive sales and orders at manufacturers such as 3M Co. and H.B. Fuller Co. More corporate investment and inventory rebuilding are also keeping assembly lines busy, contributing to economic growth as businesses look beyond federal budget cuts.

“Business spending will have another good year,” said Nigel Gault, chief U.S. economist for IHS Global Insight in Lexington, Massachusetts. “There’s demand here in the U.S., and some return of export growth.”

Stocks held earlier gains after the report. The Standard & Poor’s 500 Index rose 0.6% to 1,571.33 at 10:04 a.m. in New York.

Estimates in the Bloomberg survey ranged from gains of 0.8% to 4.5%. The Commerce Department revised the January figure from a previously reported drop of 2%.

ISM Report

A report yesterday signaled factories took a breather in March to assess the impact of the automatic federal government spending cuts, or sequestration, which took effect at the start of the month.

The Institute for Supply Management’s factory index fell to 51.3 in March from an almost two-year high of 54.2 in February, the Tempe, Arizona-based group reported yesterday. A reading of 50 is the dividing line between growth and contraction.

“There is concern that sequestration will weigh on some sectors,” Josh Dennerlein, an economist at Bank of America Corp. in New York, said before the report. Over the longer term, “autos and housing are really kicking in. That feeds into the rest of the economy.”

Today’s report showed factory orders excluding transportation equipment climbed 0.3% after a 2% increase the prior month.

Durable Goods

Bookings for durable goods, those meant to least at least three years, make up just over half of total factory demand. In addition to planes and autos, demand improved for primary metals and electrical equipment including appliances.

Demand for commercial aircraft, which is often volatile, jumped 95.1% in February after dropping 23.8% a month earlier. Boeing Co., the Chicago-based aerospace company, said it received orders for 179 aircraft in February, up from two in January.

Orders for non-durable goods including petroleum, issued for the first time today, increased 0.8%. These bookings often reflect changes in commodity prices as the figures aren’t adjusted for inflation.

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 3.2% after increasing 6.7% the prior month, the biggest gain since March 2010. They were initially estimated to have dropped 2.7% in February, according to data issued last week.

More Shipments

Shipments of those goods, used in calculating gross domestic product, increased 1.9% after a drop of 0.7% the previous month.

The one weak spot in today’s report were stockpiles. Factory inventories rose 0.2% in February after a 0.6% gain the prior month, today’s report showed. Manufacturers had enough goods on hand to last 1.27 months at the current sales pace, down from 1.28 in January.

Demand for autos also contributed to the gains. Motor vehicles and parts orders increased 1.4% after a 1.3% drop, today’s report showed.

Cars and light trucks sold at a 15.3 million annual rate in February after a 15.2 million pace the prior month, Ward’s Automotive Group data showed. The sales rate may have risen in March to 15.4 million, the average of 15 analyst estimates, and if that pace keeps up, it will be the highest total since 2007.

‘Good Start’

H.B. Fuller, a St. Paul, Minnesota-based maker of adhesives and coatings, reported a first-quarter revenue gain that exceeded analysts’ estimates, and reiterated profits forecasts for 2013. Chief Executive Officer James Owens said on a March 28 conference call that 2013 is “off to a good start,” as rising sales in its North American construction products business indicate “the end markets are gradually improving.”

3M, the St. Paul, Minnesota-based maker of products ranging from Scotch tape to dental braces, is among companies saying growth in the U.S. will help cushion weakness in markets like Europe, especially in consumer electronics.

“We’re operating pretty steady in the U.S. and Latin America,” David Meline, chief financial officer, said at a March 21 conference. “In Asia, it’s more mixed. Western Europe continues to have a number of challenges.”

Manufacturing, which accounts for about 12% of the economy, is projected to keep contributing to growth this year. At the same time, the outlook may be clouded by the automatic, across-the-board federal spending cuts that began on March 1 as lawmakers failed to reach a compromise on ways to reduce the debt.

Bloomberg News

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