US manufacturing still weak, labor market flexes muscle

New orders for long-lasting U.S. manufactured goods fell in February as the sector continued to struggle with the lingering effects of a robust dollar and lower oil prices. While other data on Thursday showed an increase in the number of Americans filing for unemployment benefits last week, revisions to the prior weeks' figures showed the labor market was much stronger than previously thought.

The resilience of the labor market has helped calm fears the economy was head- ing into a recession, and the combination of tightening labor market conditions and firming inflation likely keeps the Federal Reserve on course to steadily raise interest rates this year.

"The economy continues to hold its own despite a slowdown in many other countries around the world. The Fed can continue with its policy of gradual rate hikes," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, declined 2.8 percent last month after increasing 4.2 percent in January. Durable goods orders have decreased in three of the last four months.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.8 percent after advancing by a downwardly revised 3.1 percent in January. These socalled core capital goods orders were previously reported to have increased 3.4 percent in January. Economists polled by Reuters had forecast durable goods orders falling 2.9 percent last month and orders for core capital goods slipping 0.1 percent.

U.S. stocks fell on the data and weaker oil prices. The dollar rose against a basket of currencies after St. Louis Fed President James Bullard said another U.S. interest rate "may not be far off." Prices for U.S. Treasuries were mixed.

The U.S. central bank increased its short-term interest rate in December for the first time in nearly a decade. In a separate report, the Labor Department said initial claims for state unemployment benefits rose 6,000 to a seasonally adjusted 265,000 for the week ended March 19.

The government also revised data going back to 2011, which showed claims generally trending lower than previously reported. Claims for the week ended March 5 were the lowest since November 1973. The low level of claims has economists anticipating another month of strong job gains in March after nonfarm payrolls increased by 242,000 in February.

"The U.S. jobs market remains solid. With a tighter jobs market, more people are looking for work and employers are raising wages, both good news for consumer spending and the overall economy in 2016," said Gus Faucher, deputy chief economist at PNC Financial Services in Pittsburgh. Strong domestic demand is helping to offset some of the drag on manufacturing from weak global consumption. Despite February's drop in durable goods orders, there are signs the downward spiral in manufacturing is drawing to an end.

Several reports in recent days have shown a pick-up in regional factory activity in March, leading to optimism that a broader manufacturing survey will show the sector expanded this month for the first time since September.