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Chrysler Group LLC assembly worker Richard Rudolph puts together an engine for a 2014 Ram 1500 pickup truck on the assembly line at the Warren Truck Plant during a tour of the plants redesigned work stations in Warren, Michigan, September 25, 2014. REUTERS/Rebecca Cook

U.S. factory orders weak, but auto sales brighten economic outlook

WASHINGTON – New orders for U.S. factory goods fell in April as demand for transportation equipment and other goods weakened, suggesting that manufacturing remained constrained by a strong dollar and spending cuts in the energy sector.

But the outlook for manufacturing and the broader economy got a lift from another report on Tuesday showing automobile sales in May on track for the quickest pace in more than nine years.

“The outlook for manufacturing is modestly positive. Demand from consumers and businesses is growing slowly. Households are gradually boosting their spending on manufactured goods,” said Gus Faucher, a senior economist at PNC Financial in Pittsburgh.

New orders for manufactured goods slipped 0.4 percent after increasing 2.2 percent in March. Factory orders have declined in eight of the last nine months. Economists had forecast orders to be unchanged in April. Excluding the volatile transport component, orders were flat for a second straight month.

Manufacturing, which accounts for about 12 percent of the U.S. economy, has been hit by the dollar and lower crude oil prices, which are pressuring the profits of multinational corporations and oil-field firms.

Orders for transportation equipment fell 2.4 percent in April. There also were declines in orders for information technology equipment, computers and related products, and consumer goods.

Separate reports showed solid gains in auto sales in May as households bought a range of motor vehicles.

General Motors Co <GM.N> forecast sales rising to a seasonally adjusted annual rate of 17.6 million units in May, which would be the strongest since January 2006, up from a 16.5 million-unit pace in April.

GM said its sales had increased 3 percent last month. Fiat Chrysler Automobiles <FCAU.N> <FCHA.MI> reported a 4 percent rise. Ford Motor Co’s <F.N> sales, however, fell 1 percent as demand for its F-Series pickup trucks slackened.

Strong auto sales could boost May consumer spending, which was flat in April after households cut back on purchases of motor vehicles. A rebound in consumer spending, which accounts for more than two-thirds of U.S. economic activity, is being eyed after slowing down sharply in the first quarter.

Consumer spending was sluggish even as households got a boost from cheaper gasoline and steadily rising wages.

In related news, U.S. auto sales end 2014 strong, helped by low gas prices.

CAUTIOUSLY OPTIMISTIC

There is cautious optimism that households will soon start utilizing some of their savings and help offset the drag on the economy from continued cutbacks in business spending.

Gross domestic product contracted at a 0.7 percent annual rate in the first three months of the year.

Federal Reserve board member Lael Brainard warned on Tuesday the economic weakness at the start of the year could be more than transitory, citing the dollar and sluggish business investment.

The dollar fell sharply against the euro on Tuesday on hopes that Greece would reach a deal with its creditors. Prices for U.S. government also fell, while U.S. stocks rose marginally.

The Commerce Department also said orders for non-defense capital goods excluding aircraft, which are seen as a measure of business confidence and spending plans, fell 0.3 percent in April instead of the 1.0 percent advance 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, were revised down to show only a 0.5 percent gain in April instead of the previously reported 0.8 percent rise.

Lower oil prices prompted Schlumberger <SLB.N>, the world’s top oil-field services provider, and rival Halliburton <HAL.N> to slash their capital expenditure for this year.

Multinational corporations including Procter & Gamble Co <PG.N>, the world’s largest household products maker, and Whirlpool Corp <WHR.N>, the global home appliances giant, have warned that the dollar will hurt profits this year.

But there are signs the downturn could be nearing its end as the dollar rally fades, the supply chain normalizes after being disrupted by a labor dispute at West Coast ports and business spending outside the energy sector picks up.

A report on Monday showed factory activity rising for the first time in seven months in May and new orders increasing solidly.

“We are moving past the weakest period for energy-related capex … which should be a positive development for the manufacturing sector,” said Daniel Silver, an economist at JPMorgan in New York.

This article was written by Lucia Mutikani from Reuters and was legally licensed through the NewsCred publisher network.

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