BUSINESS

US factory orders rose 0.8 per cent in October, helped by solid gain in investment goods

12/05/2012 10:09 EST | Updated 02/04/2013 05:12 EST
WASHINGTON - Orders to U.S. factories rose modestly in October, helped by a big gain in demand for equipment that reflects business investment plans.

Factory orders edged up 0.8 per cent in October, the Commerce Department said Wednesday. The increase slowed from a 4.5 per cent jump in September.

Orders for core capital goods, a category viewed as a good proxy for business investment plans, increased 2.9 per cent in October, the biggest increase in eight months. That represented an upward revision from an initial estimate of 1.7 per cent. The increase came after big declines in the investment category this summer.

Orders for durable goods rose 0.5 per cent in October, up from a preliminary estimate of no gain, while orders for nondurable goods, items such as chemicals and paper, were up 1.1 per cent.

Businesses have been holding back on investment plans because they are worried about the "fiscal cliff." That's the name for sharp tax increases and federal spending cuts that will take effect in January if Congress and the Obama administration do not reach a budget deal by then to avert them.

There is also more caution because of slower growth overseas and Europe's debt crisis. Those developments have cut into U.S. exports and corporate profits.

The 2.9 per cent rise in orders for core capital goods in October was the biggest one-month gain since a similar increase last February. It followed a 0.5 per cent drop in September and marked only the second advance in the past five months.

U.S. manufacturing shrank in November to the weakest level since July 2009, according to a survey released Monday by the Institute for Supply Management. Worries about automatic tax increases in the New Year cut demand for factory orders and manufacturing jobs.

Consumers may also be getting nervous about higher taxes. Economists cited the fiscal cliff as a key reason consumer spending fell in October by the most since May.

When consumers cut back on spending, businesses typically reduce their pace of restocking. Both trends are expected to slow economic growth at the end of the year.

The economy grew from July through September at an annual rate of 2.7 per cent, largely because of strong growth in inventories. Most economists predict growth is slowing in the current October-December quarter to a rate below 2 per cent.

However, many economists believe growth will pick up in 2013 if Washington is able to resolve its budget dispute without inflicting serious harm on the economy. Many economists also say that the economy will receive a boost from continued gains in housing construction and from stronger consumer spending that will reflect increases in employment.