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November 3, 2016 12:00 PM, EDT

Factory Orders Rise, but Sector Still Struggling to Emerge From Slump

Sean Proctor/Bloomberg News

New orders for U.S. factory goods rose for a third straight month in September, but a further decline in order books suggested the manufacturing sector will struggle to emerge from a prolonged slump.

The Commerce Department said Nov. 3 new orders for manufactured goods increased 0.3% after an upwardly revised 0.4% gain in August.

Economists polled by Reuters had forecast factory orders rising 0.2% in September after a previously reported 0.2% increase in August. Unfilled orders at factories fell for a fourth straight month in September.

Manufacturing, which accounts for about 12% of the economy, has been hurt by a strong dollar and weak global demand. Production also has been undermined by the collapse in oil drilling activity in the aftermath of the plunge in oil prices.

There is cautious optimism, however, that a turnaround may be imminent. A survey published Nov. 1 showed factory activity rising in October for a second straight month amid a jump in production.

But factories reported a slowdown in new orders, which suggests any pickup in manufacturing activity will be modest.

In September, orders for transportation equipment fell 1.1%, largely reflecting a drop in defense aircraft orders.

Motor vehicle production jumped 2.6%, the largest increase since July 2015. Orders for machinery increased 1.1%, the biggest rise since January.

The Commerce Department also said orders for nondefense capital goods excluding aircraft — seen as a measure of business confidence and spending plans — fell 1.3% instead of the 1.2% decline reported last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 0.4% in September instead of the previously reported 0.3% rise.

Shipments of overall factory goods shipments increased 0.8%, the biggest rise since June 2015. Inventories of factory goods were unchanged after two straight months of increases. That left the inventories-to-shipments ratio at 1.34 compared with 1.35 in August.