US economy: First sign of recovery?

Factory orders in the United States are on the increase for the first time this year, boosting hopes that the country will avoid a recession.

The rise in new orders for manufactured goods during March - only now published by the Department of Commerce - reflected stronger demand for airplanes, cars and other transportation equipment.

Factory orders in March (February)

Transportation:
+24.8% (-0.3%)

Electronics & electrical:
5.5% (+6.4%)

Industrial machinery:
-2.8% (-3.3%)

Primary metals:
-2% (-1.2%)

TOTAL:
+1.8% (-0.1%)

Source: US Department of Commerce

But although the total gains offer a glimmer of hope, transportation orders - which include very expensive products - can distort the figures.

Demand for cars, aeroplanes, ships and even army tanks tends to swing from month to month. In March orders were up by a substantial 24.8%, contrasting with a dip of 0.3% in February.

Excluding transportation equipment, factory orders actually fell by 1.2% in March.

Beating expectations

But the strong performance has softened fears of an all-out recession, after the economy grew just 1% in the fourth quarter of last year.

March's factory orders beat expectations, increasing by 1.8% to a seasonally adjusted $370.5bn, according to the Department of Commerce.

The stronger growth in orders on the books, which had been estimated to be a mere 1.5%, followed a 0.1% drop in February, according to revised figures.

And the pace of the whole economy during the first three months of the year - expanding at an annual rate of 2% - was twice as fast as many economists had expected.

Badly hit

Nonetheless, this is still a substantial slowdown, which has badly hit the US manufacturing sector, where companies have cut back workforces and production to adjust to flagging demand.

In several staggered attempts to stave off a recession, the US Federal Reserve has cut interest rates four times since the beginning of the year.

Transportation orders have boosted factory data

The total cut - from 6.5% to 4.5% - is aimed at kick-starting growth by making it cheaper for companies and consumers to borrow money.

Other factory orders

While the total was boosted by the upswing in orders for transportation equipment, orders for electronic and electrical equipment, including household appliances, fell by 5.5% in March.

The demand for industrial machinery dropped by 2.8%.

Meanwhile, shipment of goods, which is seen as a good indicator of current demand, increased by 0.4% to $366.5bn, after a 0.4% decrease in February.

This was the first jump in shipments since August 2000.

On Tuesday, the National Association of Purchasing Management survey reported that US manufacturing had declined for the ninth successive month in April.