Factory orders up in January, helped by airplanes

Martin Crutsinger, AP Economics Writer, On Friday March 4, 2011, 10:28 am EST

WASHINGTON (AP) -- Businesses ordered more manufactured goods from U.S. factories in January, but excluding a big surge in demand for airplanes, the rise in demand was the smallest in three months.
Excluding the volatile transportation category, orders rose 0.7 percent in January, the weakest showing since October, the Commerce Department reported Friday. And a key category that serves as a proxy for business investment plans fell by the largest amount in two years.
Helped by the surge in demand for commercial aircraft, total business orders rose 3.1 percent in January, the biggest gain in more than four years. That pushed total orders up to $445.6 billion, a level that economists view as healthy and 26.3 percent above the recession low hit in March 2009.
Friday's report showed that demand for durable goods rose 3.2 percent, an upward revision from a preliminary estimate last week of 2.7 percent. Demand for nondurable goods such as chemicals, paper and food rose 3.1 percent in January, the same as the December increase.
Orders for nondefense capital goods excluding aircraft fell 6.2 percent in January, the biggest drop since January 2009. This category is closely watched because it is viewed as a good indicator of business plans to invest to expand and modernize their operations.
The big January drop followed two months of strong gains in business investment spending and was seen as a temporary setback. Economists believe business investment will get a boost this year from a new tax break which provides for full write-offs for capital equipment purchases made this year.
Among the areas showing weakness in January were orders for machinery, which fell 12.6 percent, the biggest one-month drop since January 2004, and demand for computers and other electronic products, which was down 5.9 percent.
Manufacturing has been one of the standout performers so far in this recovery.
Earlier this week, the Institute for Supply Management said U.S. manufacturing activity expanded in February at the fastest pace in nearly seven years. Companies are benefiting from rising domestic demand and stronger export sales. A declining dollar has made American goods more competitive in foreign markets.