March 3, 2016 / 3:07 PM / 2 years ago

U.S. factory orders data points to easing in manufacturing slump

WASHINGTON, (Reuters) - New orders for U.S. factory goods increased by the most in seven months in January, in another hopeful sign for the troubled manufacturing sector.

The Commerce Department said on Thursday new orders for manufactured goods rebounded 1.6 percent after an unrevised 2.9 percent drop in December. That was the largest increase since June and followed two straight months of declines.

Economists polled by Reuters had forecast factory orders rising 2.0 percent in January.

Factory activity, which accounts for about 12 percent of the economy, has been slammed by a strong dollar and weak global demand, which have undercut exports. Spending cuts by energy firms in the wake of a plunge in oil prices are also a drag, as are efforts by businesses to reduce an inventory glut.

But the worst of the factory slump appears to be over, with a survey this week showing an improvement in sentiment among manufacturers in February. A report last month showed solid gains in industrial production in January.

In January, factory orders rose broadly, with orders for transportation equipment jumping 11.4 percent.

The Commerce Department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans – rose 3.4 percent instead of the 3.9 percent increase reported last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, fell 0.4 percent in January as previously reported.

Inventories of factory goods fell for a seventh straight month, suggesting factories were making progress in reducing the inventory glut. While that could support future manufacturing activity, it suggests inventories will again be a drag on economic growth in the first quarter.

That left the inventories-to-shipments ratio at 1.36, down from 1.37 in December. Unfilled orders at factories edged up 0.1 percent in January and have now increased in three of the last four months.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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