U.S. factory orders fall unexpectedly; weakness in demand broad-based

By Lucia Mutikani

WASHINGTON (Reuters) – New orders for U.S. factory goods unexpectedly fell in April as demand for transportation equipment and a range of other goods weakened, suggesting that manufacturing remained constrained by a strong dollar and spending cuts in the energy sector.

New orders for manufactured goods slipped 0.4 percent after a slightly upwardly revised 2.2 percent increase in March, the Commerce Department said on Tuesday. March’s orders were previously reported to have increased 2.1 percent.

Factory orders have declined in eight of the last nine months. Economists had forecast orders to be flat in April. Excluding the volatile transport component, orders were unchanged for a second straight month.

Manufacturing, which accounts for about 12 percent of the U.S. economy, has been hit by the dollar and lower crude oil prices, which are pressuring the profits of multinational corporations and oil firms.

Orders for transportation equipment fell 2.4 percent in April. There were also declines in orders for information technology equipment, computers and related products, and consumer goods.

The Commerce Department also said orders for non-defense capital goods excluding aircraft, which is seen as a measure of business confidence and spending plans, fell 0.3 percent instead of the 1.0 percent advance reported last month.

Shipments of non-defense capital goods orders excluding aircraft, used to calculate business equipment spending in the gross domestic product report, were revised down to show a 0.5 percent gain in April instead of the previously reported 0.8 percent rise.

Companies like Schlumberger <SLB.N>, the world’s top oil-field services provider, and Halliburton <HAL.N> have cited the lower oil prices in slashing their capital expenditure for this year.

The dollar is squeezing the profits of multinational corporations, including Procter & Gamble Co <PG.N>, the world’s largest household products maker, Colgate-Palmolive <CL.N> and Whirlpool Corp <WHR.N>, the world’s largest maker of home appliances.

But there are signs the downturn could be nearing its end as the dollar rally fades, the supply chain normalizes after being disrupted by a labor dispute at West Coast ports and business spending outside the energy sector picks up.

A report on Monday showed factory activity rising for the first time in seven months in May and a gauge of new orders increasing solidly.

The dollar is almost 3 percent off its peak in March against the currencies of the United States’ main trading partners. In addition, rig counts suggest the energy investment rout is nearing its end.

Separately, sales data from the U.S. auto industry on Tuesday showed that consumers bought cars and trucks in May at the fastest pace in almost a decade. Sales of pickup trucks and SUVs led the way, which bodes well for the profit margins of the major automakers.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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