Thu, Feb 06, 2003 page12

• Factory orders rebound in US on defense surge

  DECEMBER NUMBERS Commerce Department figures bring cautious predictions of both a rise in US manufacturing and in business investment

  • BLOOMBERG
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  US factory orders rebounded in December, led by demand for defense equipment, furniture and appliances. The increase suggests manufacturing will continue to expand and accelerate the economy's growth.

  Orders rose 0.4 percent to US$320.6 billion, following a 0.8 percent drop in November, the Commerce Department said.

  Orders for defense hardware surged 16.6 percent.

  Manufacturing in January began to reflect the rise in orders, expanding for a third straight month, an industry report showed on Monday.

  With inventories low relative to sales, factories may need to ratchet up production even more to make sure retailers have enough goods on hand.

  "Manufacturing is in the process of strengthening," said John Ryding, chief market economist at Bear Stearns & Co in New York.

  "I think production will expand in the first quarter," Ryding said.

  Economists had expected December orders to rise 0.3 percent to US$320.2 billion, based on the median of 64 forecasts in a Bloom-berg News survey. Manufacturing accounts for about a seventh of the US economy.

  For all of last year, US factory orders fell 0.8 percent, after dropping 7.4 percent in 2001.

  Some economists are cautioning against pinning too much hope on the orders number, a volatile measure that dropped as much as 2.5 percent and increased as much as 4.4 percent a month last year.

  While defense and consumer demand helped boost orders, corporate spending remains weak, said Tim Rogers, chief economist at Briefing.com in Boston.

  "We're still waiting for businesses to join in," he said.

  Business investment will pick up later this year, some economists said.

  "Capital equipment today has a shorter lifespan than ever before and the longer you go with capital spending at low levels, the greater the eventual need for replacement spending," said Lou Crandall, chief economist at Wrightson ICAP in New York, before the industry report was released.

  Economic growth is expected to rise to a 2.7 percent annual rate this quarter from a 0.7 percent annual growth rate in the last three months of 2002, according to the latest consensus estimate by the Blue Chip Economic Indicators.

  Orders for non-defense capital goods excluding aircraft fell 0.3 percent in December after falling 3 percent the previous month.

  Non-defense orders have declined four of the last five months.

  Shipments of such goods, which economists consider a proxy for current business investment in computers and software, fell 1.3 percent following a 1.4 percent decrease in November.

  In addition to the surge in defense equipment, the December rise was led by an 11 percent rise in appliance orders and a 3 percent rise in furniture orders.

  Clothing orders gained 1.8 percent, while orders for petroleum products rose 6.5 percent.

  Orders for all non-durable goods, which include industrial chemicals, drugs, papers and textiles, rose 1.1 percent in Decem-ber after falling 0.4 percent the month before.

  New orders for durable goods, which account for more than half of the factory report, fell 0.2 percent in December, reflecting a drop in automobiles and metalworking machinery.

  The decrease in durable goods orders compared with a previously reported gain of 0.2 percent.

  Computer orders increased 25.3 percent.

  Meanwhile, commercial aircraft orders jumped by 22.2 percent in December.

  Bookings for electrical equipment, appliances and components rose 0.4 percent.
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