U.S. factory orders rise for fifth time in six months

U.S. factory orders increased 0.9 percent in September, the U.S. Commerce Department announced Tuesday -- another positive data point for the economy and the industrial indicator's fifth rise in six months.

A Bloomberg News survey of economists had expected September factory orders to rise one percent. Factory orders declined 0.8 percent in August, and increased 1.4 percent in July.

Excluding the often-volatile transportation component (which includes airplanes and cars), factory orders increased 0.8 percent in September.

Nevertheless, factory orders have still declined 13.9 percent in the first nine months of 2009, compared to the same period a year ago -- a stat that reflects the productive output decline triggered by the recession.

In September, orders for durable goods increased 1.4 percent, while orders and shipments for non-durable goods rose 0.6 percent. Transportation goods orders rose two percent, including a 14 percent surge in defense aircraft orders and a 2.8 percent gain in motor vehicle orders.

Other order categories were as follows: machinery, up 7.9 percent; computers, up 3.6 percent; primary metals, up 0.8 percent; and electrical equipment, down 1.7.

Meanwhile, shipments rose 0.8 percent, and inventories dropped 1.0 percent -- the 13th consecutive monthly decline for inventories -- as companies continue to pare back inventories to realign them with lower demand.

As a result, the nation's inventory-to-sales ratio declined to 1.36 in September from 1.38 in August.

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 also 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 to the Commerce Department.

Economic Analysis: September showed a solid rise for U.S. factory orders, and the trend is clear: Companies and vendors have experienced and continue to see a modest increase in demand in the economy, prompting them to increase orders. The manufacturing sector is rebounding and the U.S. economy is recovering. Further, when one combines the increase in demand with depleted inventories and the need to rebuild them, that creates two factors that, at least historically, have led to a sustainable recovery.

How strong the recovery will be remains unclear, however, particularly given America's changed consumption habits. Hence, executives and public officials should look on the factory order trend as a building block, not a total solution. Policy makers must still do everything within their power to stimulate demand and create engines of growth -- whether in infrastructure, energy, technology, residential housing, commercial building or education fields -- to ensure a sustainable recovery with expanding opportunity.
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