Defense aircraft demand boosts US factory orders; underlying weakness lingers

WASHINGTON: New orders for U.S.-made goods increased by the most in nearly 1-1/2 years in December amid strong demand for defense aircraft, but weak business spending on equipment pointed to limited scope for a sharp rebound in manufacturing even as business confidence is improving.

Factory goods orders surged 1.8per cent, the largest gain since August 2018, the Commerce Department said on Tuesday. Data for November was revised down to show orders tumbling 1.2per cent instead of dropping 0.7per cent as previously reported.

Economists polled by Reuters had forecast factory orders would increase 1.2per cent in December. Excluding defense, factory orders dropped 0.6per cent in December after edging up 0.1per cent in the prior month. Overall factory orders fell 0.6per cent in 2019.

Easing trade tensions between the United States and China have led to a pickup in business sentiment. A survey on Monday from the Institute for Supply Management showed its measure of national factory activity rebounded in January after contracting for five straight months.

But risks continue to loom over manufacturing, which accounts for 11per cent of the U.S. economy. While Washington and Beijing signed a Phase 1 trade deal last month, U.S. tariffs on US$360 billion of Chinese imports, about two-thirds of the total, remain.

Boeing last month suspended production of its troubled 737 MAX jetliner, which was grounded last March following two fatal crashes. The coronavirus, which has killed hundreds of people in China and infected thousands globally, could disrupt supply chains, especially for electronics producers.

U.S. stock indexes were trading sharply higher as fresh intervention by China’s central bank calmed investor concerns about the health of the world’s second-largest economy. Prices of U.S. Treasuries were trading lower while the dollar was stronger against a basket of currencies.

SHIPMENTS INCREASE

Shipments of manufactured goods rose 0.5per cent in December after gaining 0.3per cent in November. Unfilled orders at factories were unchanged in December after dropping 0.6per cent in November. Inventories at factories increased 0.5per cent in December after rising 0.3per cent in the prior month. That could limit any bounce in manufacturing.

The 18-month-long U.S.-China trade war has pressured business confidence and undercut capital expenditure. Business investment contracted in the fourth quarter for the third straight quarter, the longest such stretch since 2009.

Economists estimate Boeing’s biggest assembly-line halt in more than 20 years could slice at least half a percentage point from first-quarter GDP growth. The U.S. economy grew 2.3per cent in 2019, the slowest in three years, after expanding 2.9per cent in 2018.

The coronavirus could hurt global growth, which has been stabilizing after declining since mid-2018.

Transportation equipment orders surged 7.9per cent in December, the biggest increase since August 2018, after plunging 8.2per cent in the prior month. Orders were boosted by a 168.3per cent jump in demand for defense aircraft and parts, which offset a 74.7per cent tumble in orders for civilian aircraft and parts. Motor vehicle and parts orders increased 0.5per cent in December.

But machinery orders fell 1.0per cent in December after dropping 1.2per cent in November. Orders for electrical equipment, appliances and components orders decreased 0.3per cent in December.

The government also said orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, dropped 0.8per cent in December instead of deceasing 0.9per cent as reported last month.

Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, declined 0.3per cent in December, rather than falling 0.4per cent as previously reported.

(Reporting by Lucia Mutikani; Editing by Paul Simao)