04/03/2012 10:20 EDT | Updated 06/03/2012 05:12 EDT

US factory orders rose 1.3 per cent in February as businesses bought more capital goods

WASHINGTON - Businesses ordered more machinery and equipment from U.S. factories in February, a signal that many are investing in their companies despite the expiration of a tax credit.

Orders to U.S. factories increased 1.3 per cent in February, the Commerce Department said. That offset a similar decline in January.

Demand for so-called core capital goods, a gauge of business investment plans, rose 1.7 per cent. That was better than the government's preliminary estimate last week and followed a steep drop in January.

U.S. factory orders have been steadily rising since the recession ended nearly three years. Orders totalled $468.4 billion in February, just 3.4 per cent below the previous peak hit in 2008.

Last year, businesses could reduce their taxable profits by an amount equal to the cost of a major investment. The credit spurred a jump in orders for industrial machinery, computers and other capital goods at the end of last year. Spending on core capital goods surged 3.5 per cent in December, then fell by nearly as much in January after the tax credit expired.

Joshua Shapiro, chief economist at MFR Inc., wrote in a note to clients that the rebound in February suggests the tax credit played "a substantial role in the December/January gyrations."

"There was probably still an element of payback in February, and we would expect levels to normalize in coming months, after which underlying conditions will be more easily discernible," Shapiro said.

In February, orders for durable goods, items expected to last at least three years, increased 2.4 per cent. That was slightly higher than the estimate the government made in last week's preliminary report.

Transportation orders rose a solid 3.9 per cent in February. Demand in the volatile commercial aircraft category increased 6 per cent. Orders for cars and auto parts edged up 0.2 per cent.

Orders for nondurable goods, such as paper, chemicals and food, rose 0.4 per cent in February.

A vibrant manufacturing sector has helped drive the best job growth in two years. The economy added an average of 245,000 jobs per month from December through February. Those gains helped lower the unemployment rate to 8.3 per cent. Manufacturers have added more than 100,000 jobs in the past three months, about one-seventh of the total net gain in employment over this period.

The Labor Department will release the March jobs report on Friday. Economists forecast employers added 210,000 jobs and the unemployment rate was unchanged at 8.3 per cent.

U.S. factories stepped up hiring and production in March, based on a report Monday from the Institute for Supply Management.

The trade group of purchasing managers said its index of manufacturing activity rose to 53.4 in March, up from a February reading of 52.4. Readings above 50 indicate manufacturing is expanding.

Manufacturing has been a key source of economic growth since the recession ended in June 2009.

The economy grew at an annual rate of 3 per cent in the October-December period, up from 1.8 per cent growth in the previous quarter.