Strong Factory Orders Show Businesses Are Restocking Inventories

Wednesday, 31 Mar 2010 10:15 AM

New orders received by U.S. factories rose for a sixth straight month in February as businesses rebuilt inventories, government data showed on Wednesday, pointing to continued expansion in the manufacturing sector.

The Commerce Department said orders for manufactured goods increased 0.6 percent after an upwardly revised 2.5 percent jump in January, initially reported as a 1.7 percent advance.

Economists polled by Reuters had forecast factory orders rising 0.5 percent last month.

Manufacturing is leading the economy's recovery from the longest and deepest downturn since the 1930s as businesses restock their warehouses. Inventories were liquidated to record low levels to cope with weak demand.

Orders excluding transportation rose 0.7 percent after a 0.5 percent increase in January, the department said. It was the seventh consecutive month of gains.

Orders for non-defense capital goods excluding aircraft, seen as a measure of business confidence, rose 2.0 percent after falling 4.4 percent in January.

Unfilled orders at U.S. factories rose 0.5 percent last month, the largest increase since July 2008, after increasing 0.2 percent in January. February marked the second straight month that unfilled orders rose.

Shipments fell 0.1 percent after increasing 0.7 percent in January. Analysts reckon the rise in unfilled orders will keep factories busy and lift employment.

"Backlogs are beginning to build within the supply chain as firms do not have sufficient capacity to meet new demand. This bodes well for an increase in production and employment going forward," said Joseph Brusuelas, chief economist at Brusuelas Analytics in Stamford, Conn.

Inventories rose 0.5 percent in February, the biggest increase since August 2008, after advancing 0.3 percent the prior month. That left the inventories-to-shipment ratio, a measure of how long it would take to deplete current stocks, unchanged at 1.29 months' worth.

The department revised durable goods orders for February to show a 0.9 percent increase rather than the previously reported 0.5 percent. Excluding transportation, orders rose 1.4 percent last month instead of 0.9 percent.

Also Wednesday, a report showed that business activity in the U.S. Midwest expanded less than expected in March.

The Institute for Supply Management-Chicago business barometer slipped to 58.8 in March from 62.6 in February. Economists forecast the index at 61. A reading above 50 indicates expansion in the regional economy.

"With the ADP and now the Chicago PMI misses, it seems that we had this great run with all these improvements and now the data is just topping out," said James Cox, managing partner at Harris Financial Group.

The employment component of the index edged up to 53.1 in March from 53 in February. New orders fell to 61.8 in March from 62.2 in the previous month.

© 2015 Thomson/Reuters. All rights reserved.

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