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The Honolulu Advertiser
Posted on: Thursday, April 1, 2010

Factory orders up, driven by demand from overseas

Associated Press

Hawaii news photo - The Honolulu Advertiser

Orders to U.S. factories rose in February, led by demand for commercial aircraft. However, employers cut 23,000 jobs in March, instead of adding 40,000 as predicted.

Associated Press library photo

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WASHINGTON Factory orders rose in February, bolstered by strong demand for industrial machinery and commercial aircraft. It was the 10th increase in 11 months as manufacturing continues to provide crucial support for the nation's economic recovery.

"We're not a red-hot economy," said Tim Quinlan, an economist at Wells Fargo. "But the recovery is still plodding along."

Manufacturers, which were hit hard by the recession, are benefiting from overseas orders and increased business spending on capital equipment. Quinlan estimates that factory orders fell by about 25 percent during the recession but have recovered about one-third of that amount since last spring.

The Commerce Department said yesterday that new orders rose 0.6 percent in February, just ahead of analysts' estimates for a 0.5 percent increase, according to Thomson Reuters. Still, that was the lowest uptick since August 2009.

January's orders also were revised higher to show an increase of 2.5 percent, the department said.

Separately, a private company's report on payrolls yesterday disappointed Wall Street analysts. Payroll provider ADP said that employers cut 23,000 jobs in March.

Economists had forecasted a 40,000 gain.

Stocks were mixed after the data, which comes before tomorrow's employment report by the Labor Department. The Dow Jones industrial average fell about 21 points in midday trading though some broader indices ticked up.

In the factory orders report, economists were encouraged by a 2 percent rise in orders for capital goods such as computers and machinery following a sharp drop in January. That means businesses have started to increase their investment spending, economists said.

In addition, inventories rose by 0.5 percent last month, the fourth increase in the past five months and better than the 0.3 percent rise seen in January.

Auto makers and other manufacturers cut their stockpiles sharply during the recession, and rebuilding stockpiles will help fuel the recovery. Larger inventories also would indicate that companies are confident about future sales.

Still, inventories aren't growing as quickly as many economists would like.

"That suggests to me that firms are still cautious about their sales outlook," said Zach Pandl, an economist at Nomura Securities. He would like to see inventories increase at closer to a 1 percent pace.

Businesses reduced their stockpiles at a much slower pace in the final three months of last year, compared with the rapid drawdowns during the recession. That swing contributed about two-thirds of the fourth-quarter's economic growth. The gross domestic product increased by 5.6 percent in the fourth quarter, the fastest pace in six years.

Orders for big-ticket manufactured items, known as durable goods, also rose 0.6 percent in February, slightly higher than a preliminary estimate released last week. Machinery orders jumped 5.1 percent, driven by higher demand for heating and air conditioning equipment and turbines and other power generation gear.