U.S. factory orders rebound in December

Polaris ATV and snowmobile assembly line at their manufacturing and assembly plant in Roseau
People work on a Polaris snowmobile assembly line at their manufacturing and assembly plant in Roseau, Minnesota, U.S. June 7, 2021. Picture taken June 7, 2021. REUTERS/Dan Koeck

WASHINGTON, Feb 2 (Reuters) - New orders for U.S.-manufactured goods rebounded in December, but higher interest rates are weighing on business spending on equipment, which could keep manufacturing under pressure.

The Commerce Department said on Thursday that factory orders increased 1.8% after dropping 1.9% in November. Economists polled by Reuters had forecast orders would rebound 2.2%.

Orders increased 11.8% on a year-on-year basis in December.

The Federal Reserve's fastest cycle of interest rate hikes since the 1980s, aimed at fighting inflation, is undercutting demand for goods, which are mostly bought on credit.

The dollar's past appreciation against the currencies of the United States' main trade partners and a softening in global demand are also hurting manufacturing. Spending is shifting back to services. The Institute for Supply Management said on Wednesday that its manufacturing PMI contracted for a third straight month in January.

The rebound in factory orders in December was driven by a 16.9% jump in bookings for transportation equipment, which followed a 5.2% drop in November. Transportation equipment orders were boosted by a 115.5% surge in orders for civilian aircraft. Motor vehicle orders fell 0.7%.

There were decreases in orders for machinery as well as computers and electronic products. But orders for electrical equipment, appliances and components rose 1.1%.

The Commerce Department also reported that orders for non-defense capital goods, excluding aircraft, which are seen as a measure of business spending plans on equipment, dipped 0.1% in December, instead of 0.2% as 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, dropped 0.6% instead of 0.4% as previously reported.

Reporting by Lucia Mutikani; Editing by Paul Simao

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