Core U.S. Factory Orders Jump More Than Expected

Orders for goods made in U.S. factories held up better than expected in January despite headwinds from higher interest rates and a trend away from goods toward services spending.

New orders for manufactured goods fell $8.9 billion or 1.6 percent to $542.8 billion in January, the U.S. Census Bureau reported Monday. That was better than the 1.8 percent decline forecast by economists.

Orders were up 1.7 percent in December and down 1.9 percent in November. Over the past six months, orders have registered an average decline of 0.15 percent as consumer spending has shifted away from the pandemic era tilt toward goods and higher interest rates have made financing big ticket items more expensive. Consumer surveys show that plans to make large purchases have declined in recent months.

Orders for durable goods fell 4.5 percent, the Census Bureau said. This was unchanged from the earlier estimate. The drop was driven by a sharp fall off in transportation orders, which fell 13.3 percent. Excluding transportation, orders rose 1.2 percent.

The decline in transportation orders was caused by a large drop off in the volatile category of nondefense aircraft. Orders in this category can jump up and down by a lot because of the high price of airplanes and the large size of orders from airlines. In January, orders fell 54.5 percent to $12.5 billion after rising 105.6% in December and falling 30.7 percent in November.

Orders for core capital goods, which exclude aircraft and defense orders, rose 0.8 percent, stronger than many analysts expected. The strength of this category, which is considered a proxy for business investment, adds to the evidence that the economy has not slowed by as much as expected. The market increasing expects that the resurgence of growth and inflation in January could led the Federal Reserve to hike rates faster, perhaps returning to a 50 basis point hike at the March meeting of the central bank.

Orders for consumer goods rose 1.3 percent, the latest sign that consumer spending has remained stronger than forecast. Orders for consumer durable goods fell 0.6 percent while orders for nondurable consumer goods rose 1.8 percent.

Overall, orders for nondurables rose 1.5 percent, boosted by a rise in orders for food and petreloeum and coal products.

The data is adjusted for seasonality but not for price changes. High levels of inflation in January, when the personal consumption expenditure price index rose 0.6 percent compared with the previous month, can boost order levels even if the volume of goods purchased declines.