December Factory Orders Rebound

Factory orders rebounded in December, led by demand for defense equipment, furniture and appliances. The increase suggests that manufacturing will continue to expand and accelerate the economy’s growth.

Orders rose 0.4% to $320.6 billion, after a 0.8% drop in November, the Commerce Department said. Orders for defense hardware surged 16.6%.

Manufacturing in January began to reflect the rise in orders, expanding for a third straight month, an industry report showed Monday. With inventories low relative to sales, factories may need to step up production even more to make sure that retailers have enough goods on hand.

“Manufacturing is in the process of strengthening,” said John Ryding, chief market economist at Bear Stearns & Co. in New York. “I think production will expand in the first quarter.”

For all of last year, factory orders fell 0.8%, after dropping 7.4% in 2001.

Some economists cautioned against pinning too much hope on the orders number, a volatile measure that dropped as much as 2.5% and increased as much as 4.4% a month last year.

Government spending for defense increased at an 11.2% annual rate in the final three months of 2002, the fastest since last year’s first quarter, recent government figures show.

Defense and consumer demand helped boost orders, but corporate spending remains weak, said Tim Rogers, chief economist at Briefing.com in Boston.

“We’re still waiting for businesses to join in.”

Orders for nondefense capital goods excluding aircraft fell 0.3% in December after falling 3% the previous month. Nondefense orders have declined four of the last five months.

In addition to the surge in defense equipment, the December rise was led by an 11% rise in appliance orders and a 3% rise in furniture orders. Clothing orders gained 1.8%, while orders for petroleum products rose 6.5%.

Orders for all nondurable goods, which include industrial chemicals, drugs, papers and textiles, rose 1.1% in December after falling 0.4% the month before.

New orders for durable goods, which account for more than half of the factory report, fell 0.2% in December, reflecting a drop in automobiles and metalworking machinery.

The decrease in durable goods orders compared with a previously reported gain of 0.2%.