Orders to U.S. factories for big-ticket manufactured goods fell 0.9 percent in January, the worst showing in three months, as demand for commercial aircraft fell sharply, the government reported Thursday.
The Commerce Department said that demand for durable goods, items expected to last three or more years, dropped by $1.7 billion last month to a seasonally adjusted $200.4 billion. The weakness was led by a 27.1 percent plunge in orders for commercial aircraft.
The overall decline was larger than expected, but it followed two months of strong gains. Orders were up 1.4 percent in December after an even larger 2 percent rise in November. They fell by 1 percent in October.
Some cooling off in factory orders in January had been expected, given that the series is extremely volatile and there had been strong gains in the previous two months.
Private economists said the report showed that demand for manufactured goods held up reasonably well in January, given that it was the first month after the end of special business tax breaks. Congress had passed those tax breaks to encourage companies to boost investment to help lift the country out of the 2001 recession.
“Any fears of a hangover in early 2005 after the expiration of the depreciation tax bonus at the end of last year can now be officially put to bed,” said Steve Stanley, chief economist at RBS Greenwich Capital. Stanley said he will likely boost his estimates of the strength of business investment in early 2005 based on the new durable goods report.
“The decent durable goods orders are another sign that the economy continues to move ahead at a moderate pace,” said Joel Naroff, chief economist at Naroff Economic Advisors. He predicted the report would be read at the Federal Reserve as another sign it needs to continue pushing interest rates up at a gradual pace to keep inflation under control.
The U.S. manufacturing sector suffered the most in the last recession and has struggled to regain its footing since that time. Nearly 3 million manufacturing jobs have been lost as U.S. factories have faced rising competition from abroad.
For January, the big drop in orders reflected a decline of $2.17 billion in demand for commercial aircraft and parts, which fell to $5.84 billion last month. The 27.1 percent drop in this category followed a 16.8 percent decline in December.
Orders for autos and auto parts were also down, dropping 3.8 percent to $38.15 billion. Analysts had expected a slowdown in this area as auto dealers struggle to reduce a buildup of unsold cars.
Excluding transportation, durable goods orders rose by 0.8 percent last month following a 2.8 percent surge in December.
Demand for primary metals such as steel rose by 1.6 percent while demand for kitchen appliances and other electrical equipment shot up a record 13 percent.
Demand for computers and related electronics products dropped by 1.2 percent while demand for machinery of various types edged up 0.3 percent.
Non-defense capital goods, a category that is closely tracked because it can reveal business plans to expand and modernize, edged up a slight 0.2 percent in January after having fallen 0.7 percent in December.