October 4, 2011 / 2:08 PM / 6 years ago

Factory orders send mixed signals on outlook

WASHINGTON (Reuters) - New orders for manufactured goods fell in August but capital investment by businesses rose, providing a mixed view for how much support the factory sector will provide to the economic recovery.

The Commerce Department said on Tuesday orders for manufactured goods decreased for the second time in three months, falling by 0.2 percent and failing to meet economists’ expectations of a flat reading.

“This portends a rocky road ahead for the factory sector,” Wells Fargo analysts said in a report.

Yet orders for capital equipment, excluding aircraft and defense goods -- a less volatile reading viewed as a measure of the sector’s underlying health -- rose by 0.9 percent after declining in July.

This coincided with a broader reading of the manufacturing sector on Monday, which showed an increase in activity in September. The rise in the Institute for Supply Management index to 51.6 eased concerns of manufacturing decline.

The latest retail sales data also sent mixed signals. Chain store sales reported by Redbook Research down 0.1 percent in September, while the weekly chain store index from ICSC/Goldman Sachs rose by the same amount in the week ended Oct 1.

Federal Reserve Chairman Ben Bernanke warned of economic risks ahead, saying in testimony to Congress that the recovery was “close to faltering” and urging lawmakers not to cut government spending too quickly.

Stocks, battered early in the day after European officials postponed a vital aid payment to debt-stricken Greece, briefly turned positive after Bernanke said the Fed was prepared to do more to help the economy.

Investors will be focused on data on September U.S. payrolls due Friday that is expected to show a still moribund jobs market. A high unemployment rate and heavy household debts have kept consumer demand muted.

The Commerce Department report showed orders excluding transportation decreased for the first time in six months, also falling 0.2 percent.

Orders for transportation equipment dropped 0.1 percent in August as demand for motor vehicles fell 5.3 percent.

Shipments fell 0.2 percent after rising 1.2 percent the prior month, while inventories increased 0.4 percent.

Editing by Stella Dawson and James Dalgleish

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