Noted for May 24, 2013
11 minutes ago
Orders from U.S. and foreign businesses for capital equipment rose for the fourth straight month in July, the Commerce Department reported Wednesday.
Factory orders increased 1.3% in July, slower than the 2.0% growth that economists surveyed by MarketWatch had been looking for.
Economists believe that the nation's manufacturing sector may finally have turned the corner. On Tuesday, the Institute for Supply Management reported growth in the group's manufacturing index for the first time in 19 months. See full story.
Orders for durable goods increased 5.1% in July, revised down from 4.9% estimated a week ago. Orders for nondurable goods fell 1.9%, the government's data showed.
Meanwhile, shipments of factory goods were barely negative in July, and have fallen in 11 of the past 12 months. Shipments are down 19.9% in the past year.
Inventories fell 0.7% in July, marking an 11th straight monthly decline. Analysts believe the behavior of inventories over the next few months will say a lot about the economy's ability to recover from the worst recession in 70 years.
Inventories of manufactured durable goods in July, down seven consecutive months, decreased $2.9 billion or 0.9 percent to $313.7 billion, revised from the previously published 0.8 percent decrease. This followed a 1.5 percent June decrease.
Inventories of manufactured nondurable goods, down eleven consecutive months, decreased $0.7 billion or 0.4 percent to $189.4 billion. This followed a 0.4 percent June decrease. Plastic and rubber products led the decrease, down $0.4 billion or 2.0 percent to $18.9 billion.
China has been pulling out of the global slump more decisively than any other major economy, thanks to an enormous stimulus program. A survey of purchasing managers at Chinese companies, which signaled expansion beginning in March, moved up to 54 in August from 53.3 in July.
Japan reported an upturn in industrial production earlier this week. It said industrial production in July rose 2.2% from June, the best monthly gain since the global recession hit.
The euro zone's purchasing managers' index rose to 14-month high of 48.2 in August, up from 46.3 in July, closing in on the 50 level that would indicate activity has stopped falling. The surveys showed manufacturing in France is growing again, and has nearly steadied in Germany. But in some countries, such as Italy, Spain and Ireland, manufacturing declines continued.
As in the U.S., European businesses have cut inventories so sharply that even a modest revival of demand is likely to lead to increases in production.
In the U.S., the manufacturing sector grew for the first time since January 2008; the key gauge of this, the Institute for Supply Management's manufacturing index, rose to 52.9 from 48.9 the previous month, driven by improvements in new orders and production. Levels above 50 indicate growth. Meanwhile, the purchasing managers' index for China swung into expansionary territory in March -- well before other nations -- and has stayed there ever since, but Tuesday's reading of 54.0 for August show activity expanded at its fastest pace in more than a year. And Japanese industrial output rose 1.9% in July, beating expectations.
The positive signs come on the heels of another report Tuesday showing similar strength in Europe. Though still contracting, the euro-zone manufacturing purchasing manager index rose to 48.2 in August from 46.3 in July, a 14-month high. The improvement came on the back of gains in Germany and France, but Spain and Italy posted declines. The U.K. showed unexpected weakness, as the nation's manufacturing sector shifted into contractionary territory. August's reading came in at 49.7 from 50.2 a month earlier.
Still, the August improvement in the U.S. is notable because many of the industries that improved aren't linked to automotive production. That signals an improvement in demand apart from the Cash for Clunkers program, which let people trade vehicles in for a credit toward more fuel-efficient models, helping boost consumer spending and manufacturing.
New orders were a driving force behind the manufacturing gains in the U.S., rising almost 10 percentage points to 64.9. Production and supplier deliveries, which tend to be tied to improvements in new orders, also rose.
In the midst of all the good news, hiring was still a weak spot in the U.S. manufacturing report. The index shows that employment was still contracting and some companies noted in their comments that layoffs were still ahead. Separate indicators released Tuesday showed mixed signs for the construction industry. The National Association of Realtors' pending home sales index rose to 97.6 in July from 94.6 in June. But construction spending feel 0.2% in July to a seasonally adjusted annual rate of more than $958 billion compared to the prior month, the Commerce Department said.
With hiring still struggling and housing working toward stabilization, healthier foreign economies could buoy the U.S. recovery. The manufacturing report's exports index climbed five percentage points to 55.5 in August.
"Apparently the dollar is at a level that foreign demand is going to be reasonably strong, said Norbert J. Ore, chairman of the ISM manufacturing survey. "That will also help us through the balance of the year if it continues."
A similar index covering the heavily industrialized Milwaukee region rose to 56 in August from 45 in July, while the Dallas Federal Reserve Bank said factory activity in Texas declined in August but at a slower pace than in July.
Meanwhile, business activity in New York City, which tends to be driven by trends in the financial sector, expanded in August for the first time in three months, thanks to increased purchases and a slowdown in layoffs.
The National Association of Purchasing Management-New York index of business conditions rose to 55.3 from 48.3 in July. Improvements in purchasing volume and employment conditions signaled the worst of the city's downturn might be ending, the group said.
Chicago's PMI hits the dead-even 50.0 mark in August, indicating no change in business activity from July and a bottoming for the recession in the region. The results, along with indications from other regional surveys, point to similar no-change 50 readings for this week's ISM national reports. Chicago's report showed a huge nearly 10-point jump in production to 52.9 in a reading that indicates output actually rose in August. The rise in output put stress on the supply chain as deliveries slowed, to 54.9 for a 5 point rise. Orders are moving into backlogs with the index showing one of the biggest gains of any component, up nearly 14 points to 45.8. To meet production needs, Chicago businesses drew down their inventories, to 27.5 vs. July's 25.4, and have yet to show any indication that they intend to rebuild their inventories. New orders, which point to future production, increased strongly in August, to 52.5 for a 4-1/2 point gain. The gain in production and gain in new orders have to yet significantly slow the pace of layoffs as the employment index shows severe month-to-month contraction at 38.7, still nevertheless a nearly 2-1/2 improvement from July.