Factory Orders Slip in January, but Machinery Orders Bounce Back

William Ng

March 6, 2015

3 Min Read
Factory Orders Slip in January, but Machinery Orders Bounce Back

US factory orders fell in January for the sixth straight month, slipping 0.2% from December and further crimping the recent slowdown in the nation's manufacturing sector.

In the Commerce Department data released Thursday (March 5), the drop in new orders was mostly attributed to the 3.1% tumble in demand for nondurable goods. But while durable goods industries saw a 2.8% rise in bookings, following a 3.7% plunge in December, most of the orders came from the volatile transportation equipment sector. Excluding transportation, total factory orders in January fell a sharp 1.8%.

The decline in new orders came as a surprise to economists, who predicted bookings to expand 0.2% to begin the year. Factory orders are a harbinger for upcoming manufacturing sector activity, which already has cooled in the last few months. The Federal Reserve last week reported that US manufacturing ticked up just 0.2% in January, in a preliminary reading for the month. However, the Institute for Supply Management earlier this week released its February manufacturing index that signaled a fourth straight monthly decline.

MORE FROM DESIGN NEWS: Manufacturing Up Modestly as Industrial Production Rebounds in January

Continued lackluster factory output and demand will moderate once-promising manufacturing sector growth expectations for this year. The current slump has come as key economies in Europe and Asia struggle with weakness, while a strong dollar has hampered exports and the crash in oil prices has tamped capital equipment investment in the oil and gas sector. As reported by ISM, the slowdown at West Coast shipping ports as a result of contentious labor renegotiations has also disrupted manufacturing.

The Commerce Department's final January factory demand numbers didn't differ much from the agency's preliminary report released more than a week ago. The 2.8% rise in durable goods orders went unrevised, to which Cliff Waldman, director of economic studies for the MAPI Foundation of the Manufacturers Association for Productivity and Innovation described in a note on Feb. 26 as a "disappointing performance" with data from transportation equipment stripped out.

"The January report paints a picture of weakness in durables demand," Waldman said, adding that "the capital spending picture continues to be sluggish." He concluded that US manufacturing likely will see "moderate growth" with global weakness and business decision-makers being very conservative with expenditures.

MORE FROM DESIGN NEWS: ISM's US Manufacturing Index Slips Again, but Markit's PMI Shows Acceleration

Orders for non-defense capital goods, a measure of business investment, were up 0.5% in January, following declines in the two previous months. Machinery orders also rebounded, rising 1.4% after falling 3.3% in December, but were a dramatic 7.1% lower compared with January 2014.

Part of the rebound was mining, oil field and gas field machinery, for which orders rose 2.5% after a 8.9% drop at the end of last year. But they were counteracted by an 11.2% plunge in construction machinery orders. Turbines, generators, and power transmission equipment jumped 19%, but material handling equipment fell 4.1%.

Metalworking machinery orders grew 3.9%, starting the year strongly. The Association for Manufacturing Technology, which also tracks the industry, is expected to release its January report next week. AMT reported that industry orders expanded 3.1% in 2014, which was "in line" with its expectations.

Orders in the computers and electronics products category rose 1.7%, on robust demand for computers and defense communications equipment. Electrical equipment, appliances and components slipped 3.8% as a category, on a 2% dip in household appliance orders and a 5% drop in electrical equipment purchases.

Will Ng is a perfectionist who has been in business journalism for more than 15 years, many of which have been devoted to covering manufacturing, technology, and industry. A writer first, he loves to tell a good story and enjoys reporting on market trends and news.

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