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Strong U.S. durable goods orders offer hope for manufacturing
February 25, 2016 / 1:40 PM / 2 years ago

Strong U.S. durable goods orders offer hope for manufacturing

A woman shops for refrigerators at a store in New York in this file photo taken on July 28, 2010. REUTERS/Shannon Stapleton

WASHINGTON (Reuters) - New orders for long-lasting U.S. manufactured goods in January rose by the most in 10 months as demand picked up broadly, 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 should help calm fears of a recession that have spooked investors on the stock market.

“The manufacturing malaise that plagued the U.S. is not broad-based. You don’t get a recession when capital spending is at worst, moving sideways, and jobless claims are near cycle lows on a trend basis,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.

The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, surged 4.9 percent last month, reversing December’s 4.6 percent plunge. January’s increase was the largest since March and beat economists’ expectations for only a 2.5 percent rise.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 3.9 percent after tumbling by a revised 3.7 percent in December. These so-called core capital goods orders were previously reported to have decreased 4.3 percent 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 report also added to data on retail sales, employment, existing home sales and industrial production in suggesting that the economy regained its footing at the start of the year after stumbling in the fourth quarter.

Manufacturing, which accounts for 12 percent 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.

Job seekers break out to visit corporate employment personnel at a U.S. Chamber of Commerce Foundation "Hiring Our Heroes" military job fair in Washington January 8, 2016. REUTERS/Gary Cameron

“While today’s report breathes some life into the outlook for the troubled manufacturing sector as well as prospects for business spending, we are not out of the woods yet,” said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte, North Carolina.

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. The four-week moving average of claims, which irons out week-to-week volatility, fell 1,250 to 272,000.

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.

“The claims data shows no break in the labor market trends that got the Fed to hike in December,” said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

The data helped to limit the drag from declining oil prices on U.S. stocks. Prices for U.S. government debt rose while the dollar was little changed against a basket of currencies.

Durable goods orders were in January boosted by a 54.2 percent 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 percent.

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

Unfilled durable goods orders edged up 0.1 percent in January after falling 0.5 percent the prior month, while inventories slipped 0.1 percent following a 0.2 percent gain in December.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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