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Durable Goods Orders Rise In January

Thu, 02/25/2010 - 5:00am
Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- Orders to U.S. factories for big-ticket manufactured goods shot up in January by the largest amount in six months, but the strength came from a surge in demand for commercial aircraft.

Demand for autos, machinery and a host of other products fell last month, indicating manufacturing is still facing hurdles that could slow the economic recovery.

The Commerce Department reported Thursday that orders for durable manufactured goods jumped 3 percent in January, the biggest increase since a 5.8 percent increase last July. However, excluding transportation, durable goods orders fell by 0.6 percent, a weaker showing than economists had expected.

The drop in orders excluding transportation followed solid gains of 2 percent in both December and November.

Analysts were not too concerned by the drop in demand outside of aircraft, noting that the government revised higher the increase in orders excluding transportation in December to show a gain of 2 percent, stronger than the initial estimate of a 1.4 percent rise.

Paul Ashworth, an economist at Capital Economics, said the January durable goods report provided further evidence that "the manufacturing sector is enjoying a healthy rebound, driven by restocking and a sharp turnaround in world trade."

Economists are hoping that the economy will get a boost from a revival in the nation's battered factory sector. Demand for U.S. exports is expected to be bolstered by last year's decline in the value of the dollar. A weaker dollar makes U.S. products cheaper in overseas markets.

For January, the 3 percent rise in overall orders was led by a 15.6 percent increase in demand for transportation products. That gain was propelled by a more than doubling in demand for commercial aircraft, where orders jumped by 126 percent. This offset a 2.2 percent drop in orders for motor vehicles, a sector that continues to face tough times.

The 0.6 percent drop in orders outside of transportation reflected a big 9.7 percent plunge in demand for machinery, which offset a 1.9 percent increase in orders for primary metals such as steel.

Orders for non-defense capital goods, excluding aircraft, fell by 2.9 percent in January following solid gains in the two previous months. This category is considered a proxy for business plans to invest in new equipment to expand and modernize.

For all of 2009, orders for durable goods fell by a record amount as U.S. manufacturers were battered by a deep global recession.

The hope is that improving outlooks in the United States and globally will make 2010 a better year for U.S. manufacturers. American companies are benefiting from a rise in demand for U.S. exports, reflecting in part a drop in the value of the dollar for much of 2009.

The Institute for Supply Management reported that its gauge of manufacturing activity rose to 58.4 in January, marking the sixth straight month of expansion. It was the strongest reading for manufacturing activity since 2004.

The Federal Reserve reported last week that output at the nation's factories rose by 1 percent in January, the biggest manufacturing gain since August.

The overall economy as measured by the gross domestic product grew at an annual rate of 5.7 percent in the October-December quarter of last year but nearly two-thirds of that growth came from a swing in inventories, a boost that is expected to quickly fade.

The government will release a revised estimate of fourth-quarter GDP on Friday with economists expecting the overall number to come in unchanged at around 5.7 percent.

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