BUSINESS

US factory orders drop 0.7 per cent in October with key business investment category down

12/05/2014 10:06 EST | Updated 02/04/2015 05:59 EST
WASHINGTON - Orders to U.S. factories slipped for a third straight month in October and would have fallen even more except for a big jump in defence orders. A key category that tracks business investment spending fell for a second straight month.

Factory orders fell 0.7 per cent in October following declines of 0.5 per cent in September and 10 per cent in August, the Commerce Department reported Friday.

Demand for machinery, computers and primary metals were all down. An important category that is viewed as a proxy for business investment plans fell 1.6 per cent following a 1.1 per cent decline in September.

The overall decline would have been larger except for a surge in military orders, which jumped 21.2 per cent in October, reflecting strong demand for military aircraft. Economists expect the recent weakness will be temporary.

Orders for durable goods, items expected to last at least three years, edged up a slight 0.3 per cent following two months of declines but excluding defence, orders would have fallen 0.7 per cent. Orders for nondurable goods such as chemicals and paper, fell 1.5 per cent in October after a 0.2 per cent drop in September. Some of that decline reflects falling energy prices.

Orders for transportation equipment rose 3.4 per cent in October, helped by a small 0.6 per cent gain in demand for motor vehicles and a 45.3 per cent surge in orders for military airplanes. Orders for commercial aircraft edged down 0.1 per cent in October.

Demand for machinery dropped 1.4 per cent, orders for computers were down 12.7 per cent and orders for primary metals such as steel fell 2.4 per cent.

Economists say these declines will be temporary. They note that spending by businesses on new equipment grew at a solid annual rate of 10.7 per cent in the third quarter and they expect further gains in coming months as businesses ramp up spending to expand and modernize their operations.

The Institute for Supply Management, a trade group of purchasing managers, reported Monday that its closely watched gauge of manufacturing activity slipped a modest amount in November to a reading of 58.7, down from 59 in October, which matched a three-year high reached in August. Any reading above 50 signals expansion.

Manufacturing has been a key driver of U.S. growth this year even as it has fallen off overseas in such key economies as China and Europe.