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Factory orders increase 2.5%

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Associated Press

WASHINGTON — Orders to U.S. factories posted the biggest gain in three months in November, but the strength was concentrated in a surge in demand for commercial aircraft.

The Commerce Department reported Wednesday that orders to factories rose by 2.5 percent in November to a record $407.7 billion. It was the best percentage gain since a 2.9 percent rise in August and followed a 1.7 percent increase in October.

The report was heavily influenced by a surge in demand for commercial aircraft, which shot up by 134.3 percent. Outside of all transportation categories, orders were essentially unchanged. That made it the fourth month out of the past five that this broad category either has fallen or shown no growth.

Economists are looking for a slowdown in manufacturing growth in coming months as companies catch up on an order backlog caused by the Gulf Coast hurricanes.

They believe that manufacturing also will be held back by weakness in the auto industry, where U.S. automakers are fighting a sales slowdown and inroads being made by their foreign rivals.

On Wall Street, the Dow Jones industrial average rose 32.74 points to close at 10,880.15.

The Institute for Supply Management reported Tuesday that its closely watched gauge of manufacturing activity came in at an unexpectedly weak 54.2 for December. It was the lowest reading in seven months, indicating that manufacturing activity was slowing as 2005 drew to a close.

Taken together, the weak rise in factory orders outside of transportation and the slowdown in the ISM index point to slower growth in manufacturing in coming months, analysts said.

Stephen Stanley, chief economist at RBS Greenwich Capital, noted that inventories held by factories were up only 0.2 percent in November after a stronger 0.6 percent gain in October.

He said this slowdown in inventory building would make it hard for overall economic growth to top 3 percent in the October-December quarter, a sharp slowdown from the 4.1 percent rate of growth turned in during the July-September quarter.

But analysts said they were still looking for manufacturing to be a source of strength in the new year as companies boost ordering of the equipment needed to expand and modernize their facilities.

"The fundamentals for strong capital spending remain in place — record corporate profits and an economy that will post solid growth," said Nariman Behravesh, chief economist at Global Insight, a private forecasting firm.

The 2.5 percent rise in factory orders in November reflected a 4.4 percent jump in demand for durable goods, the best showing in six months and unchanged from a preliminary estimate made on Dec. 23. Orders for nondurable goods, items such as petroleum, clothing and food, rose by 0.4 percent following a 0.1 percent October gain.

The demand for durable goods, items expected to last at least three years, was led by the surge in demand for commercial aircraft, reflecting the success that aircraft-maker Boeing Co. had at the Dubai air show. For November, Boeing booked 148 new plane orders compared to 36 orders in October.