Manufacturing Data Stir Recovery Hopes

A small increase in U.S. factory orders in July, along with signs that deterioration in Chicago-area industrial activity has ebbed, roused hopes Friday that the recession-mired manufacturing sector may be stabilizing.

But a separate report showing American consumers were slightly less upbeat about the economy in August kept alive concerns that consumer spending, which represents two-thirds of economic activity, could slow in the months ahead.

The Commerce Department said the value of orders for goods produced at U.S. factories rose 0.1% in July to a seasonally adjusted $333.4 billion, led by orders for car parts and electrical equipment. The gain followed a 2.9% drop in June.

Economists had expected a 0.5% decline in July orders.

“The new data are pointing toward a bottoming out in the manufacturing sector, largely due to some recovery in non-high-tech parts of manufacturing,” said Paul Kasriel, chief economist at Northern Trust in Chicago.

The Commerce Department said the inventory-to-shipments ratio--which measures how long it would take to fully deplete stocks at the current pace of business--fell to 1.38 months in July from 1.40 in June.

Orders for transportation equipment climbed 0.9%, led by a 6.6% increase in orders for defense aircraft and parts.

Electrical equipment orders rose 1.2%, led by demand for household appliances.

Demand for computers and other electronic products, however, extended a long decline, taking a 4.5% tumble in July.

Separately, the National Assn. of Purchasing Management’s Chicago chapter said its August index of regional business activity rebounded to 43.5 in August from 38.0 in July, beating forecasters’ expectations for 39.8.

Although that represented an improvement, economists cautioned that the index still remained at recessionary levels and showed ongoing deterioration in business activity.

A separate report Friday showed that consumer sentiment dipped in August, led by worsening expectations for the future as corporate layoffs piled higher and the stock market weakened, threatening to undermine consumer spending growth in the months ahead.