January Upturn in Factory Orders Mask Underlying Weakness

By March 4, 2010Economy

Today’s Commerce Department report on January factory orders falls short of expectations and indicates that the manufacturing recovery will likely slow down in coming months.

While overall orders increased by 1.7 percent in January, much of this was driven by aircraft orders, which are extremely volatile from month to month. Excluding transportation, orders edged up just 0.1 percent, the slowest gain in six months.

In addition, new orders of core capital equipment orders – a good indicator for business investment – fell 4.1 percent after two months of strong gains. This decline indicates that the surge in capital investment in the fourth quarter of last year was spurred by temporary factors such as expiring business investment tax credits. Looking ahead, continued growth in the first quarter is unlikely, as businesses remain cautious about the underlying strength of the emerging recovery.

Leave a Reply