June 4, 2018 / 2:10 PM / 2 months ago

Weak demand for aircraft hurts U.S. factory orders

WASHINGTON (Reuters) - New orders for U.S.-made goods fell more than expected in April, weighed down by declines in demand for transportation equipment and machinery, but the underlying trend continued to suggest strong momentum in the manufacturing sector.

Construction lifts are parked near the Drydock Center in Boston, Massachusetts, U.S., June 2, 2017. REUTERS/Brian Snyder

Factory goods orders decreased 0.8 percent, the Commerce Department said on Monday. Data for March was revised up to show orders rising 1.7 percent instead of the previously reported 1.6 percent increase.

Economists polled by Reuters had forecast factory orders falling 0.5 percent in April. Orders advanced 8.3 percent on a year-on-year basis in April.

The monthly decline in factory orders is likely to be temporary amid reports of strong manufacturing conditions in May. A survey by the Institute for Supply Management last week showed sentiment among manufacturers perking up in May amid a surge in new orders.

Manufacturers, however, complained about rising prices for raw materials, especially for steel. The Trump administration in March announced tariffs for steel and aluminum imports to protect domestic industries from what it says is unfair competition from foreign producers.

Prices are likely to rise even higher following Washington’s decision last week to extend the duties to steel and aluminum imports from Canada, Mexico and the European Union. Some manufacturers also said they could not find skilled workers.

The Federal Reserve’s latest “Beige Book” report of anecdotal information on business activity collected from contacts described manufacturing as having “shifted into higher gear” in late April and early May. But the U.S. central bank also said “contacts continued to report difficulty filling positions across skill levels.”

STRONG DOMESTIC DEMAND

Manufacturing, which accounts for about 12 percent of U.S. economic activity, is being supported by strong domestic and global demand.

U.S. stock indexes were higher in early trading on Monday while prices of U.S. Treasuries were weaker. The dollar .DXY fell against a basket of currencies.

Orders for transportation equipment fell 6.0 percent, pulled down by a 28.9 percent plunge in the volatile orders for civilian aircraft. Transportation orders increased 6.9 percent in March. Orders for motor vehicles rose 1.0 percent in April.

Orders for machinery dropped 0.7 percent after tumbling 3.1 percent in March. That reflected a decline of 11.6 percent in orders for mining, oil field and gas field machinery. Orders for industrial machinery fell 10.0 percent.

But orders for electrical equipment, appliances and components increased 1.8 percent. There were also increases in orders for fabricated metal products and primary metals.

Unfilled orders at manufacturers rose 0.5 percent in April. They have increased in five of the last six months. Manufacturing inventories increased a moderate 0.3 percent, which also bodes well for factory production.

The Commerce Department also confirmed that April orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans, increased 1.0 percent as reported last month. Orders for these so-called core capital goods fell 1.0 percent in February.

Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, rose 0.9 percent in April instead of the 0.8 percent gain reported last month.

Core capital goods shipments fell 0.7 percent in March and were up 8.4 percent year-on-year in April. Business spending on equipment is slowing after double-digit growth in the second half of 2017.

The moderation is occurring despite the Trump administration’s $1.5 trillion tax cut package, which came into effect in January. The government slashed the corporate tax rate to 21 percent from 35 percent.

Reporting by Lucia Mutikani; Editing by Paul Simao

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