New US Factory Orders Dip in December, Despite Strength Elsewhere
New orders for US-manufactured goods declined by 0.9% in December, driven by a sharp drop in civilian aircraft bookings. However, demand remained relatively stable in other sectors.
The Commerce Department attributed the decline to a 45.7% reduction in orders for civilian aircraft, resulting in a 7.4% fall in transportation equipment orders. Excluding transportation equipment, orders actually rose by 0.3%.
Despite the overall decrease, there were positive signs in other areas. Orders for non-defense capital goods excluding aircraft, an indicator of business equipment spending, increased by 0.4%.
On an annual basis, factory orders remained unchanged from December 2021.
Manufacturing, which accounts for approximately 10.3% of the US economy, has faced challenges due to the Federal Reserve's interest rate hikes. However, recent easing of monetary policy and a resurgence in the Institute for Supply Management's manufacturing PMI suggest a potential recovery.
However, the recovery is threatened by additional tariffs imposed on Chinese imports, which came into effect in January. Economists predict that these tariffs could exacerbate inflation and limit the Fed's ability to further cut rates.
Despite the Fed's 100 basis point rate cut in 2022, the central bank paused its easing program in January due to uncertainties surrounding the impact of President Donald Trump's policies, including immigration enforcement.