There is hope yet for manufacturing

February 25, 2016 08:49 AM

New orders for long-lasting U.S. manufactured goods in January rose by the most in 10 months as demand picked up across the board, offering a ray of hope for the downtrodden manufacturing sector.

While other data on Thursday showed new applications for unemployment benefits increased last week, they remained below levels associated with a tightening labor market. The reports suggest economic growth accelerated at the start of the year after stumbling in the fourth quarter.

The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, surged 4.9% last month, reversing December's 4.6% plunge.

January's increase was the largest since March and beat economists' expectations for only 2.5% rise.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 3.9% after tumbling by a revised 3.7% in December. These so-called core capital goods orders were previously reported to have decreased 4.3% in December.

The durable goods report was the latest indication that the worst of the manufacturing downturn was probably over. Manufacturing output rose solidly in January and factory payrolls that month increased by the most since August 2013.

The sector, which accounts for 12% of the U.S. economy, remains constrained by a strong dollar, weak global demand and capital spending cuts by oilfield service firms like Schlumberger and Halliburton following a plunge in oil prices.

Efforts by businesses to sell unwanted inventory have also meant fewer orders placed, adding to pressure on factories. Tighter financial conditions in the wake of a global stock market sell-off pose a risk to capital spending.

Solid labor market

In a separate report, the Labor Department said initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 272,000 for the week ended Feb. 20.

It was the 51st week that claims remained below the 300,000 threshold, which is associated with a strong labor market - the longest spell since the early 1970s. The labor market remains strong despite the tighter financial market conditions.

Though bets for a March interest rate hike from the Federal Reserve have been wiped out, further monetary policy tightening later in the year remains a possibility because of the jobs market resilience. The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade.

Prices for U.S. government debt fell slightly after the data. The dollar was little changed against a basket of currencies.

Durable goods orders were last month boosted by a 54.2% surge in civilian aircraft orders.

There were increases in orders for primary metals, fabricated metal products, machinery, computers and electronic products as well as electrical equipment, appliances and components. Orders for motor vehicles and parts rose 3.0%.

Shipments of core capital goods - used to calculate equipment spending in the gross domestic product report – fell 0.4% last month after advancing 0.9% in December.

The drop in shipments in January could see economists trim their first-quarter GDP growth estimates, which are currently running above a 2% annual rate. The economy grew at a 0.7% pace in the fourth quarter.

Unfilled durable goods orders edged up 0.1% after falling 0.5% in December. Durable goods inventories slipped 0.1% last month after rising 0.2% in December.

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