Ray of light: US factory orders rise for first time in 7 months

Score a positive data point for the U.S. economy.

I'm not even talking about the G-20 approving additional funds for the IMF or the suggestion that there will be an agreement on fiscal stimulus. I'm referring to an actual, specific, worthy-of-a-minor-fist-pump uptick in one of the economy's main indicators: U.S. factory orders increased 1.8 percent in February, the industrial measure's first rise in seven months, the U.S. Commerce Department announced Thursday.

Economists surveyed by Bloomberg News had expected February factory orders to rise just 1.5 percent. January factor orders were revised to a -3.5 percent decline from the previously-released -1.9 percent drop.

February ends decline

February's rise ends the longest factory order decline since the Commerce Department began keeping records for the statistic in 1992.

Excluding the often volatile transportation component (which includes airplanes and cars), factory orders increased 1.6 percent in February. The ex-transportation metric had declined -0.9 percent in January and -5.4 percent in December 2008.

Economists follow the factory orders statistic because it provides one of the most comprehensive surveys of advance orders for durable goods -- how busy factories are likely to be in the period ahead. Factory orders also are a major value-added component of the U.S. economy. However, economists caution investors not to put too much emphasis on the initial factory order monthly stat, as the total typically is revised in subsequent monthly reports as more complete data becomes available. There's also the fact that when judged against the figures of just five months ago, factory orders have still declined 18 percent.

Encouraging signs

Nevertheless, while Citigroup (C) Analyst David Thurtell is not ready to throw an expansion party just yet, he likes what he sees in the new data.

Yesterday's report of an increase in new manufacturing orders "suggests the U.S. industrial production cycle has bottomed," Thurtell told Bloomberg News Thursday in London. "Metal consumption should pick up."

In February, durable goods orders increased 0.5 percent, orders for non-defense durable goods jumped 7.2 percent and non-durable goods orders added 0.3 percent. Only core capital equipment orders continued free-falling, plunging -12.3 percent.

Meanwhile, shipments declined -0.1 percent and inventories dropped -1.2 percent. As a result, the nation's inventory-to-shipment ratio declined slightly, to 1.45 from 1.46.

Economic Analysis: A modest upside surprise for February U.S. factory orders, and investors will take it. Again, not to get ahead of the data, but it appears the rate or "speed" of the contraction is slowing. Still, it's important for investors to remember that we'll need three or four months of solid factory orders (as well as improving statistics in other categories) before we can call a real bottom to the recession. In other words, there's much work ahead, macroeconomically speaking, but today's February factory orders report is encouraging.
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