Strong US goods or­ders of­fer hope for man­u­fac­tur­ing

The Pak Banker - - BUSINESS -

New or­ders for long-last­ing U.S. man­u­fac­tured goods in Jan­uary rose by the most in 10 months as de­mand picked up broadly, of­fer­ing a ray of hope for the down­trod­den man­u­fac­tur­ing sec­tor.

While other data on Thurs­day showed new ap­pli­ca­tions for un­em­ploy­ment ben­e­fits in­creased last week, they re­mained below lev­els as­so­ci­ated with a tight­en­ing la­bor mar­ket. The re­ports should help calm fears of a re­ces­sion that have spooked in­vestors on the stock mar­ket.

"The man­u­fac­tur­ing malaise that plagued the U.S. is not broad-based. You don't get a re­ces­sion when cap­i­tal spend­ing is at worst, mov­ing side­ways, and job­less claims are near cy­cle lows on a trend ba­sis," said Ja­cob Ou­bina, se­nior U.S. econ­o­mist at RBC Cap­i­tal Mar­kets in New York.

The Com­merce Depart­ment said or­ders for durable goods, items rang­ing from toast­ers to air­craft meant to last three years or more, surged 4.9 per­cent last month, re­vers­ing De­cem­ber's 4.6 per­cent plunge. Jan­uary's in­crease was the largest since March and beat econ­o­mists' ex­pec­ta­tions for only a 2.5 per­cent rise. Non-de­fense cap­i­tal goods or­ders ex­clud­ing air­craft, a closely watched proxy for busi­ness spend­ing plans, jumped 3.9 per­cent af­ter tum­bling by a re­vised 3.7 per­cent in De­cem­ber. Th­ese so-called core cap­i­tal goods or­ders were pre­vi­ously re­ported to have de­creased 4.3 per­cent in De­cem­ber.

The durable goods re­port was the lat­est in­di­ca­tion that the worst of the man­u­fac­tur­ing down­turn was prob­a­bly over. Man­u­fac­tur­ing out­put rose solidly in Jan­uary and fac­tory pay­rolls that month in­creased by the most since Au­gust 2013. The re­port also added to data on retail sales, em­ploy­ment, ex­ist­ing home sales and in­dus­trial pro­duc­tion in sug­gest­ing that the econ­omy re­gained its foot­ing at the start of the year af­ter stum­bling in the fourth quar­ter.

Man­u­fac­tur­ing, which ac­counts for 12 per­cent of the U.S. econ­omy, re­mains con­strained by a strong dol­lar, weak global de­mand and cap­i­tal spend­ing cuts by oil­field ser­vice firms like Sch­lum­berger and Hal­libur­ton fol­low­ing a plunge in oil prices. Ef­forts by busi­nesses to sell un­wanted in­ven­tory have also meant fewer or­ders placed, adding to pres­sure on fac­to­ries. Tighter fi­nan­cial con­di­tions in the wake of a global stock mar­ket sell-off pose a risk to cap­i­tal spend­ing.

"While to­day's re­port breathes some life into the out­look for the trou­bled man­u­fac­tur­ing sec­tor as well as prospects for busi­ness spend­ing, we are not out of the woods yet," said Tim Quin­lan, an econ­o­mist at Wells Fargo Se­cu­ri­ties in Char­lotte, North Carolina. In a sep­a­rate re­port, the La­bor Depart­ment said ini­tial claims for state un­em­ploy­ment ben­e­fits in­creased 10,000 to a sea­son­ally ad­justed 272,000 for the week ended Feb. 20. The four-week mov­ing av­er­age of claims, which irons out week-to-week volatil­ity, fell 1,250 to 272,000.

It was the 51st week that claims re­mained below the 300,000 thresh­old, which is as­so­ci­ated with a strong la­bor mar­ket - the long­est spell since the early 1970s. The la­bor mar­ket re­mains strong de­spite the tighter fi­nan­cial mar­ket con­di­tions.

Though bets for a March in­ter­est rate hike from the Fed­eral Re­serve have been wiped out, fur­ther mon­e­tary pol­icy tight­en­ing later in the year re­mains a pos­si­bil­ity be­cause of the jobs mar­ket re­silience. The Fed raised its bench­mark overnight in­ter­est rate in De­cem­ber for the first time in nearly a decade.

"The claims data shows no break in the la­bor mar­ket trends that got the Fed to hike in De­cem­ber," said Steven Ric­chi­uto, chief econ­o­mist at Mizuho Se­cu­ri­ties in New York. The data helped to limit the drag from de­clin­ing oil prices on U.S. stocks. Prices for U.S. govern­ment debt rose while the dol­lar was lit­tle changed against a bas­ket of cur­ren­cies.

Durable goods or­ders were in Jan­uary boosted by a 54.2 per­cent surge in civil­ian air­craft or­ders. There were in­creases in or­ders for pri­mary me­tals, fab­ri­cated metal prod­ucts, ma­chin­ery, com­put­ers and elec­tronic prod­ucts as well as elec­tri­cal equip­ment, ap­pli­ances and com­po­nents. Or­ders for mo­tor ve­hi­cles and parts rose 3.0 per­cent. But ship­ments of core cap­i­tal goods - used to cal­cu­late equip­ment spend­ing in the gross do­mes­tic prod­uct re­port - fell 0.4 per­cent last month af­ter ad­vanc­ing 0.9 per­cent in De­cem­ber.

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