Orders for manufactured goods show unexpected October gain

Orders to U.S. factories for big-ticket manufactured goods showed a modest gain in October but much of the strength came from a big jump in orders for military equipment.

Orders for durable goods, items expected to last at least three years, rose a better-than-expected 1.3% in October and that gain followed an upwardly revised 2.1% increase in September.

A category that tracks business investment plans rose 0.7% in October after a 1.9% increase in September.

The strength in October came primarily from the volatile category of defense orders, with demand for military aircraft surging by 79.1%.

Orders for commercial aircraft, which have been battered by the sharp fall in air travel due to the coronavirus, rose 38.8%, but that comes after months of weakness. Economists are hopeful that aircraft demand will keep rising with Boeing finally receiving safety approvals for its 737 Max, which had been grounded after two fatal crashes.

Overall, transportation orders rose a modest 1.2% as the sector was held back by a 3.2% drop in orders for motor vehicles and parts.

Economists believe that that U.S. factories face significant headwinds, including a sharp rise in coronavirus cases that could throttle demand in coming months.

“The manufacturing sector remains exposed to surging virus cases that could disrupt supply chains, weigh on demand and slow the pace of the rebound going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.