U.S. factory orders beat expectations

Source: AP

By Martin Crutsinger, AP Economics Writer

Dec 04, 2009

Orders to U.S. factories unexpectedly rose in October, the sixth gain in the past seven months. It was further evidence that the manufacturing sector is beginning to recover, which will help support the overall economy.

Orders rose 0.6% in October, the Commerce Department said Friday, much better than the flat reading that economists had expected. A jump in demand for commercial aircraft and petroleum products led the gain.

Orders for durable goods, items expected to last three years, rose 0.6%, unchanged from a preliminary estimate last week. Orders for nondurable goods rose 1.6%, propelled by gains in demand for petroleum, chemicals, plastics and food.

Economists are hoping that the fortunes of the manufacturing sector are beginning to rebound after the recession briefly forced two major U.S. automakers — General Motors and Chrysler LLC — into bankruptcy protection earlier this year.

The overall economy, as measured by the gross domestic product, rose at an annual rate of 2.8% in the July-September period, the first increase after a record four quarterly declines. The worry is that the recovery could falter if the unemployment rate keeps rising and consumers don't have the incomes needed to support increased spending.

But in a second bit of good news Friday, the Labor Department reported that the unemployment rate dipped to 10% in November as the economy shed 11,000 jobs, the smallest monthly loss since the recession began in December 2007.

The factory orders report followed news earlier this week that a closely watched gauge of manufacturing activity showed growth for a fourth straight month in November. The Institute for Supply Management said its manufacturing index read of 53.6, slightly lower than October's 55.7. But any reading above 50 indicates growth.

Economists were especially encouraged that new orders in the ISM report jumped over 60 for the third time in the past four months. The last such streak was in 2005. Of the 17 industries surveyed, 13 reported higher orders.

The factory orders report for October showed that demand for transportation products rose 1.6%, led by a 50.1% surge in new orders for commercial aircraft, an extremely volatile category. Demand for motor vehicles and parts rose 0.4% , while orders for defense aircraft and parts fell 8.1%.

Excluding transportation, factory orders would have risen 0.5% following a 1.5% increase in September.

Outside of transportation, demand for primary metals such as steel rose 4.3%, but orders for machinery fell 8.5%, reflecting a 30% plunge in demand for heavy construction equipment.