U.S. factory orders increase in July despite supply constraints

September 2, 2021

WASHINGTON (Reuters) – New orders for U.S.-made goods rose in July, while business spending on equipment remained strong, signs that manufacturing was holding up despite persistent supply constraints and spending rotating back to services from goods.

The Commerce Department said on Thursday that factory orders increased 0.4% in July after advancing 1.5% in June. Economists polled by Reuters had forecast factory orders gaining 0.3%.

Orders increased 18.0% on a year-on-year basis. Though demand is shifting back to services, appetite for goods remain strong. This, together with an urgency by businesses to restock after inventories were run down in the first half of the year, should underpin manufacturing, which accounts for 11.9% of the economy.

The Institute for Supply Management reported on Wednesday an unexpected pickup in August even as manufacturers complained that labor and raw materials remained scarce.

The rise in factory goods orders in July was led by primary metals and machinery. But supply constraints depressed orders for computers and electronic products as well as those for electrical equipment, appliances and components. Orders for transportation equipment fell 2.1%.

The Commerce Department also reported that orders for non-defense capital goods, excluding aircraft, which are seen as a measure of business spending plans on equipment, edged up 0.1% in July instead of being unchanged as reported last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, rose 0.9%. Core capital goods shipments were previously reported to have advanced 1.0% in July.

Business spending on equipment was robust in the second quarter, notching the fourth straight quarter of double-digit growth. That contributed to hoisting the level of GDP well above its peak in the fourth quarter of 2019.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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