Ahead of the Bell: Factory Orders

AP News
|
Posted: Jan 05, 2010 7:01 AM

Factory orders likely rose moderately in November, providing further evidence that the manufacturing sector is supporting the overall economic recovery.

Economists surveyed by Thomson Reuters expect factory orders posted a 0.5 percent increase in November following a 0.6 percent rise in October. The Commerce Department is scheduled to release the new report at 10 a.m. EST Tuesday.

The government reported two weeks ago that orders for durable goods, items expected to last at least three years, increased a smaller-than-expected 0.2 percent in November as declines in demand for aircraft and autos offset strength in a number of other areas.

The report Wednesday will revise the preliminary look at demand for durable goods and also add orders for nondurable goods, items such as chemicals, paper and food.

Economists are hoping that the fortunes of the manufacturing sector are beginning to rebound as the economy struggles to emerge from the worst recession since the 1930s.

The overall economy as measured by the gross domestic product grew at an annual rate of 2.2 percent in the July-September quarter. That marked the first rise in the GDP after four consecutive quarterly declines.

Analysts are expecting an even bigger gain in the just-completed October-December quarter, with some of that strength coming from a revival of manufacturers.

A key gauge of manufacturing activity posted an unexpectedly strong performance in December, according to the Institute for Supply Management, a trade group of purchasing executives. The ISM reported Monday that its manufacturing index read 55.9 in December, up from a November reading of 53.6. A reading above 50 indicates growth.

It was the fifth straight month of expansion and the highest reading for the index since April 2006. The ISM said its index of new orders, a signal of future production, jumped last month to the highest level in five years, offering hope that the recovery in manufacturing is gaining strength.

That could lead to increased hiring as manufacturers ramp up production. And a turnaround in employment could boost incomes and increase consumer spending, fueling the recovery. The worry among economists has been that the current recovery could falter unless the unemployment rate begins to show sustained improvement.