New orders for U.S.-made goods increased by the most in nearly 1-1/2 years in December amid strong demand for defense aircraft, but weak business spending on equipment pointed to limited scope for a sharp rebound in manufacturing even as business confidence is improving.
Factory goods orders surged 1.8 per cent, the largest gain since August 2018, the Commerce Department said on Tuesday. Data for November was revised down to show orders tumbling 1.2 per cent instead of dropping 0.7 per cent as previously reported.
Economists polled by Reuters had forecast factory orders would increase 1.2 per cent in December. Excluding defense, factory orders dropped 0.6 per cent in December after edging up 0.1 per cent in the prior month. Overall factory orders fell 0.6 per cent in 2019.
Easing trade tensions between the United States and China have led to a pickup in business sentiment. A survey on Monday from the Institute for Supply Management showed its measure of national factory activity rebounded in January after contracting for five straight months.
But risks continue to loom over manufacturing, which accounts for 11 per cent of the U.S. economy. While Washington and Beijing signed a Phase 1 trade deal last month, U.S. tariffs on $360 billion of Chinese imports, about two-thirds of the total, remain.
Boeing last month suspended production of its troubled 737 Max jetliner, which was grounded last March following two fatal crashes. The coronavirus, which has killed hundreds of people in China and infected thousands globally, could disrupt supply chains, especially for electronics producers.
U.S. stock indexes were trading sharply higher as fresh intervention by China’s central bank calmed investor concerns about the health of the world’s second-largest economy. Prices of U.S. Treasuries were trading lower while the dollar was stronger against a basket of currencies.
Shipments of manufactured goods rose 0.5 per cent in December after gaining 0.3 per cent in November. Unfilled orders at factories were unchanged in December after dropping 0.6 per cent in November. Inventories at factories increased 0.5 per cent in December after rising 0.3 per cent in the prior month. That could limit any bounce in manufacturing.
The 18-month-long U.S.-China trade war has pressured business confidence and undercut capital expenditure. Business investment contracted in the fourth quarter for the third straight quarter, the longest such stretch since 2009.
Economists estimate Boeing’s biggest assembly-line halt in more than 20 years could slice at least half a percentage point from first-quarter GDP growth. The U.S. economy grew 2.3 per cent in 2019, the slowest in three years, after expanding 2.9 per cent in 2018.
The coronavirus could hurt global growth, which has been stabilizing after declining since mid-2018.
Transportation equipment orders surged 7.9 per cent in December, the biggest increase since August 2018, after plunging 8.2 per cent in the prior month. Orders were boosted by a 168.3 per cent jump in demand for defense aircraft and parts, which offset a 74.7 per cent tumble in orders for civilian aircraft and parts. Motor vehicle and parts orders increased 0.5 per cent in December.
But machinery orders fell 1.0 per cent in December after dropping 1.2 per cent in November. Orders for electrical equipment, appliances and components orders decreased 0.3 per cent in December.
The government also said orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, dropped 0.8 per cent in December instead of deceasing 0.9 per cent as reported last month.
Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, declined 0.3 per cent in December, rather than falling 0.4 per cent as previously reported.