December Factory Orders Up 2.7% : Construction Spending Also Jumps Sharply in Month

Factory orders in December rose a sharp 2.7% over the November level, the biggest gain in more than a year, the Commerce Department reported Monday.

Separately, the department reported that spending for new construction projects rose 2.8% in the month, the biggest increase in 11 months.

The strength last month came from a doubling in orders for civilian aircraft, which totaled $12 billion, compared to $6 billion in November. Without the big gain in the transportation segment, total orders would have fallen by 0.5% for the month.

Orders to U.S. factories are considered a good barometer of future economic activity, and the giant December increase was hailed by many economists as a positive sign for the country’s depressed manufacturing industries.

A 2.2% rise in factory orders for all of 1985, however, was down sharply from a 10.6% increase in 1984. U.S. manufacturers suffered during 1985 from stiff foreign competition.

The December increase, the largest since a 4.4% rise in November, 1984, left orders at $202.1 billion for the month following a gain of 0.8% in November and a drop of 1% in October.

John Albertine, president of the American Business Conference, a coalition of high-growth companies, called the December increase “the clearest signal we have seen to date indicating that U.S. manufacturing may well be returning to a healthy state.”

Analysts also said that, despite the lopsided nature of the increase in factory orders in December, they detected strength throughout the report.

“Manufacturers were laying off people in the first nine months of the year and liquidating inventories, but now we are ending the year with an upturn in orders, and that is a good sign,” said Donald Ratajczak, director of economic forecasting for Georgia State University.

Ratajczak predicted that the overall economy, as measured by the gross national product, will grow at a strong 3.5% to 4% rate during the first half of 1986, a forecast in line with the Reagan Administration’s assessment.

The report also said that:

- Orders for durable goods--items expected to last three or more years--was up 4.3% in December, following declines in four of the past five months.

- Orders for non-durable goods rose 0.9%, following an even bigger 2.4% November gain.

- Orders for defense equipment fell 3.9% last month, following a 10.2% rise in November.

- Orders in the key category of non-defense capital goods rose a strong 18.6% in December, helped along by the surge in demand for aircraft. This category is closely watched for the signals it can give about industry plans to expand and modernize production facilities.

- Orders for primary metals, such as steel, fell 1.4%, the second monthly decline, while orders for non-electrical machinery fell a sharp 12.4%, after rising 7.6% in November.

Shipments of factory orders totaled $200.2 billion in December, basically unchanged from the November level.

The 2.8% increase in spending for new construction last month helped push total spending in that category up 9.6% for the entire year to a total of $343 billion.

The strength was centered in non-residential construction, which rose by 19% in 1985 as building of new offices, shopping centers and factories all recorded double-digit increases.