U.S. factory orders rose sharply as production buzzed by Reuters

© Reuters File Photo: A US-made ad towel appears on June 5, 2010, at the Walmart Supercenter in Bentonville, Arkansas.

By Lucia Mutikani

WASHINGTON (Reuters) – New orders for U.S.-made goods accelerated in August, pointing to sustainable strength in production as economic growth slowed in the third quarter due to a shortage of raw materials and labor.

The Commerce Department said Monday that factory orders rose 1.2% in August. The data was revised higher in July so that orders increased by 0.7% instead of 0.7% in July. Economists surveyed by Reuters predicted that factory orders would gain 1.0%.

Orders grew 18.0% year-on-year.

Production, which accounts for 12% of the economy, is still driven by strong demand for the product despite the cost of returning to service. Traders are rebuilding inventories, which ended in the first half, based on factory activity.

A supply management survey last week showed manufacturing activity continued to expand in September, but noted that “companies and suppliers continue to face an unprecedented number of barriers to meeting growing demand.”

According to the survey, all industries “were affected during the record-long lead of raw materials, continued shortage of critical materials, rising commodity prices and difficulties in transporting goods.”

Input shortages and consequent high prices, worsened by the latest wave of Covid-1 infections, driven by the Delta variant, probably caused a sharp slowdown in GDP growth in the third quarter.

Last Friday’s data showed higher inflation in July, which saw a decline in consumer spending with a moderate rebound in August. The Atlanta Federal Reserve is forecasting GDP growth in the third quarter at an annual rate of 2.3%. The economy grew 6.7% in the second quarter.

The increase in orders for factory supplies in August was led by computer and electronic products, forged metal products, transport equipment and electrical equipment, machinery and parts. But there was a decline in machinery and primary metal orders.

The Commerce Department also reported that orders for non-defense capital goods other than aircraft, which are considered a measure of business spending plans in equipment, rose 0.6% in August from 0.5% in the same month last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment costs in the GDP report, increased by 0.8%. Capital capital goods shipments were up 0.7% in August.

Business spending on instruments was strong in the second quarter, targeting a fourth straight quarter of double-digit growth. This contributed to the GDP growth rate reaching its peak in the fourth quarter of 2011.

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