US factory orders gain momentum as production continues to buzz

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  • Factory orders up 1.2% in August
  • Core orders for capital goods revised up slightly in August

WASHINGTON, Oct. 4 (Reuters) – New orders for US-made goods accelerated in August, suggesting continued strength in manufacturing, although economic growth appeared to have slowed in the third quarter due to raw material and labor shortages.

The Commerce Department said Monday that factory orders rose 1.2% in August. July data has been revised up to show orders rose 0.7% instead of the 0.4% previously reported. Orders have now risen for four months in a row. Economists polled by Reuters had forecast a 1.0% increase in factory orders. Orders increased by 18.0% compared to the previous year.

“Factory orders continue to grow, a good sign for the manufacturing industry,” said Ryan Sweet, chief economist at Moody’s Analytics in West Chester, Pennsylvania. “However, manufacturing is still being tested by global supply chain problems.”

Shortages slowed factory deliveries, which had risen barely 0.1% in August after rising 1.5% in July.

Manufacturing, which accounts for 12% of the economy, is still driven by strong demand for goods, although spending has shifted back to services. The companies are rebuilding inventories that were used up in the first half of the year.

A survey by the Institute for Supply Management last week showed that manufacturing activity rose steadily in September, but found that “Companies and suppliers continue to face an unprecedented number of hurdles to meet rising demand.”

According to the survey, all industries were “affected by record-high raw material lead times, persistent shortages of critical materials, rising raw material prices and difficulties in transporting products.”

Wall Street stocks traded lower. The dollar fell against a basket of currencies. US Treasury bond yields rose.

Factory orders

SLOWED GDP GROWTH

Supply bottlenecks and the resulting high prices, exacerbated by the latest wave of COVID-19 infections, driven by the delta variant, are likely to have led to a sharp slowdown in gross domestic product growth in the third quarter.

Last Friday’s data showed that high inflation in July severely constrained consumer spending, with a moderate rebound in August. The Atlanta Federal Reserve predicts third-quarter GDP growth will decline to an annualized rate of 2.3%. The economy grew by 6.7% in the second quarter.

The increase in factory orders in August was led by computers and electronic products, processed metal products, transportation equipment, and electrical equipment, appliances and components. But there have been declines in orders for machines and primary metals.

With deliveries barely increasing, factory inventories rose 0.6% in August, after a similar increase in July. Factory unprocessed orders rose 1.0% after rising 0.5% in July.

The Commerce Department also reported that orders for non-defense capital goods, excluding aircraft, which are seen as a measure of companies’ equipment investment plans, rose 0.6% in August, instead of 0 as reported last month To gain 5%. However, the momentum has slowed in recent months.

Shipments of these so-called core capital goods, which are used in the GDP report to calculate business equipment spending, increased by 0.8%. Previously it was reported that core shipments of capital goods rose 0.7% in August.

Equipment spending was robust in the second quarter and posted double-digit growth for the fourth straight quarter. This helped push GDP levels well above their peak in the fourth quarter of 2019.

“Taking into account data from the Factory Goods Report and other related measures, we continue to believe that real equipment spending declined significantly in the third quarter and that real change in business inventories was near zero for the quarter,” said Daniel Silver, economist at JPMorgan in New York.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.


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