New orders for large manufactured goods dropped last month. But excluding the volatile transportation sector, orders rose by the most since the recession began.
The report is the latest sign that the once-battered manufacturing sector is helping drive the economic recovery. U.S. factories are benefiting from overseas sales and a sharp increase in business spending.
The Commerce Department said Friday that new orders for durable goods, or those expected to last three years, dropped 1.3% in March. Analysts expected a 0.3% increase, according to a survey by Thomson Reuters.
Excluding transportation, new orders rose 2.8%, much more than economists forecast and the most since December 2007.
Todays report on durable goods reinforces the emerging picture of a solid recovery in manufacturing, said Thomas Duesterberg, President and CEO of the Manufacturers Alliance/MAPI. Excluding the volatile aircraft sector, overall orders were up and year-over-year comparisons were positive for every major sub-category of manufacturing, led by primary metals, machinery, and computers . Even transportation equipment, which includes aircraft and motor vehicles, saw new orders up by over 16% in the first quarter compared to last year at the same time.
Clearly, an inventory swing is well underway as producers built stocks for the third consecutive month, he added. The only cautionary note is that order backlogs in most major categories have weakened this year, a sign that factories are producing to demand rather than supplying the market from inventories. The test over the next year will be to increase final demand so that the current jump from the inventory swing can be sustained. Domestic consumer demand and exports will have to strengthen from current levels to ensure a sustainable recovery into 2011.
Analysts said the report shows businesses are spending more on new equipment in anticipation of a stronger economy.
"Amid growing optimism about the recovery, U.S. businesses continue to ramp up orders of new equipment, a precursor of employment gains to come," said Sal Guatieri, a senior economist at BMO Capital Markets.
The overall figure for new orders was pulled down by a decline in aircraft orders, which plummeted by 67%. Airplanes are a volatile category; orders rose 134.9% in January and 32.7% in February.
The Boeing Co. said on April 21 it delivered 108 aircraft in the first quarter, down by 11% from 121 deliveries in the first quarter of 2009.
Outside the aircraft industry, the gains were broad-based. Orders for computers and electronic products rose 3.4%, the most since February 2009, while demand for machinery jumped 8.6%, the most since September of last year.
Auto and auto parts orders rose 2.5%, compared with a 1% drop the previous month. The U.S. auto industry reported healthy sales gains in March due to temporary federal tax incentives.
Overall, business spending on capital goods such as computers and machinery jumped by 4%, more than many economists forecast and the second straight increase. Business investment has been a critical factor in the recovery, as consumers haven't spent as freely as in previous recoveries.
Companies are also increasing their inventories, the report showed, though at a modest pace. Rising inventories can be a sign of confidence in future sales. Stockpiles of durable goods rose 0.2% in March, the department said, the third straight monthly gain.
After slashing their inventories during the recession to bring them in line with much lower sales, companies are replenishing their warehouses. That shift boosts production and accounted for about two-thirds of the economy's 5.6% growth in last year's fourth quarter.
The government will release next Friday its first estimate of gross domestic product, the broadest measure of the economy, for the January-to-March quarter. Economists forecast it will show growth of 3.5%, according to Thomson Reuters.
Copyright 2010 The Associated Press