Factory Orders PostUnexpected Gain for March - May 4, 2005

Factory Orders PostUnexpected Gain for March
By JEFF BATER and KEMBA J. DUNHAM Staff Reporters of THE WALL STREET JOURNAL
Amid recent indications of slowing growth in manufacturing, demand for U.S. factory goods rose for the first time in three months during March, propped up by a surge in the value of orders for nondurable items like petroleum.
The report on March demand surprised Wall Street and economists, who had expected a decline of as much as 1.2%.
Factory-goods orders inched up 0.1%, following a revised 0.5% decrease in February, the Commerce Department said yesterday. February orders were originally estimated as rising 0.2%. Orders were flat in January and rose 0.5% in December.
Factory orders are considered a leading indicator of economic activity because they can translate into demand for future output.
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Read the full text of the Commerce Department's report on factory orders, and analysis from Briefing.com.
The government raised an estimate issued a week ago for March durable-goods orders. Demand for such goods, designed to last at least three years, fell 2.3%, compared with an earlier estimate of a 2.8% decline.
Orders for nondefense capital goods excluding aircraft -- a proxy for business-investment demand -- slipped 4%, after easing 2.1% in February. Economists said this indicates that capital spending had very little momentum at the end of the first quarter and hints at further slowing in the second.
The surprise among analysts on the factory-orders report stemmed from somewhat negative data during the past week. Besides the decline in durable-goods orders, the Institute for Supply Management on Monday reported that its index of manufacturing activity retreated in April to the lowest level since July 2003, sliding to 53.3 from 55.2 in March, and the new-orders index slowed to 53.7 from 57.1. Readings above 50, however, indicate expanding activity. Analysts said higher oil prices are hurting manufacturers.
Higher prices for crude oil also may have helped prop up the nondurables segment of factory orders. Yesterday's data showed nondurables, which include petroleum, rose 2.8%, after falling 1% in February.
But that "doesn't tell us much about the strength of underlying real demand for factory goods," said David Resler, economist at Nomura Securities in New York.