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March 7, 2018

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Factory goods orders see biggest fall in 6 months

NEW orders for US-made goods recorded their biggest decline in six months in January and business spending on equipment appeared to be slowing after strong growth in 2017.

Factory goods orders dropped 1.4 percent amid a broad decrease in demand, the Commerce Department said yesterday. That was the largest drop since July 2017 and ended five straight months of increases.

December’s report was revised to show orders rising 1.8 percent instead of the previously reported 1.7 percent.

Orders for transport equipment dropped 10 percent, weighed down by a 28.4 percent plunge in the volatile orders for civilian aircraft. Economists polled by Reuters had forecast factory orders shedding 1.3 percent in January. Orders surged 8.4 percent on a year-on-year basis.

Orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans, fell 0.3 percent in January instead of declining 0.2 percent as reported last month. Orders for these so-called core capital goods shed 0.5 percent in December.

That was the first back-to-back drop since May 2016. Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, slipped 0.1 percent in January instead of edging up 0.1 percent as reported last month.

Core capital goods shipments added 0.7 percent in December. Business spending on equipment is cooling after growing by a robust 4.8 percent in 2017.

But it is likely to remain supported as companies are expected to use some of their windfall from a US$1.5 trillion tax cut package to buy machinery and other equipment as they seek to boost sluggish productivity.

The Trump administration slashed the corporate income tax rate to 21 percent from 35 percent effective in January. The tax cuts, a weakening US dollar and strengthening global economy are expected to support manufacturing, which makes up about 12 percent of the US economy.

Sentiment among manufacturers remains bullish, a survey last week showing a measure of factory activity rising in February to its highest level since May 2004. But supply constraints and labor shortages are emerging, which could hurt factory output.

In January, orders for machinery fell 0.4 percent, the biggest drop since October 2016, after rising 0.6 percent in December.


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