Washington, March 6 (Bloomberg) -- U.S. factory orders in January rose the most in six months, led by more bookings for autos, business equipment and higher-priced petroleum. Factory orders increased 2.1 percent for the month following a revised 0.3 percent increase in December, the Commerce Department said. Excluding vehicles and other transportation equipment, orders rose 1.5 percent, the biggest gain since April. The inventory-to-sales ratio, which measures the length of time goods stay on shelves, matched a record low in January, prompting companies to place orders to meet demand. An acceleration in spending will boost production and help the economy speed up later this year after any war with Iraq, economists said.
Low inventories are ``potentially good news,'' said Jay Feldman, an economist at Credit Suisse First Boston in New York. After the war, ``there is potential for an upturn in demand that could lead to stronger production in the second half.'' Economists had expected factory orders to rise 1.9 percent, based on the median of 58 forecasts in a Bloomberg News survey. Factory inventories totaled $430.8 billion, little changed from January's $431 billion. The inventory-to-shipments ratio fell to 1.31 months, from 1.34 months in December. The January ratio matched the record low reached in October. The January increase in orders was led by a 2.9 percent jump in bookings for durable goods, which account for more than half of the report. Orders for motor vehicles rose 14.6 percent, the biggest increase since August 1998, after falling 12.4 percent in December.
December Auto Sales
The jump in vehicle bookings followed the best December for sales on record, which depleted dealer inventories. Sales have since slowed in January and February. That suggests orders and production may slow in coming months before picking up again later in the year. ``It's pretty clear the manufacturing momentum cooled a bit in February,'' said James O'Sullivan, an economist at UBS Warburg LLC in Stamford, Connecticut. ``Much of the slowdown is because of geopolitical concerns that we think will be temporary.'' Not sure how a war will affect the economy, companies are reducing their workforces. The number of workers filing first-time jobless claims rose to 430,000 last week, the highest this year, a separate report from the Labor Department showed.
Productivity
Companies are in no rush to hire because they're able to produce more with less. Productivity, a measure of how much a worker produces for every hour worked, rose at a 0.8 percent annual rate in the fourth quarter, the Labor Department said. Last year, productivity increased 4.8 percent, the most since Harry Truman was president in 1950. Autos and light vehicles sales dropped for a second straight month in February, industry figures showed this week. The 15.4 million annual sales rate last month matched the October pace that was the slowest in four years. Sales had dropped in January to 16.2 million from 18.3 million at the end of last year. General Motors, the world's largest automaker, and No. 2 Ford Motor Co. both said this week they would cut North American production in the second quarter. General Motors plans to build 10 percent fewer vehicles from the year earlier quarter. Ford said it would reveal its production plans within the next month.
Business Equipment
Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in equipment and software, rose 4.5 percent following a 0.6 percent decrease the previous month. Shipments of capital goods, which are used in calculating gross domestic product, rose 3.2 percent following a 1.3 percent decline. ``Firms are becoming a little less risk averse and are willing to take on some new investment,'' said Bill Natcher, an economist at National City Corp. in Cleveland. Investment ``is still improving and that is encouraging.'' Orders may wane in coming months as the nation moves closer to a possible war with Iraq. Manufacturing expanded in February at the slowest pace in three months as consumer spending slowed, a private industry survey of supply managers showed earlier this week showed. Factory orders and production slowed, while a measure of employment was the weakest since January 2002, according to the Institute for Supply management. Replenishing inventories will boost the nation's gross domestic product by 0.2 percentage point in this year's first quarter, matching the contribution stockpiling made in the previous three months, according to a forecast by economists at Lehman Brothers Inc. in New York.
Effect on Growth
Inventories will add just 0.1 percentage point next quarter and will then contribute 0.8 percentage point to growth from July to September after the expected conflict in the Middle East is resolved, the forecast showed. That will help growth accelerate to a 3 percent annual rate from an expected 2 percent this quarter and 1.5 percent the following three months, Lehman forecast. Orders for non-durable goods, which include industrial chemicals, drugs, papers and textiles, rose 1.2 percent in January for a second month. The value of petroleum orders increased 5.1 percent after an 8.4 percent surge. //www.quote.bloomberg.com