A mixed bag regarding the most recent factory orders report: January factory orders fell a lower-than-expected -1.9%, but the December 2008 factory order decline was revised to a steeper decline, to -4.6% from -3.9% stat released earlier, the U.S. Commerce Department announced Thursday.

Further, January's -1.9% drop marked the sixth straight monthly decline for factory orders, which were driven lower by slack durable goods orders. The six-month factory order contraction is the longest decline since the Commerce Department began keeping data for the statistic in 1992.

Also, factory orders have now declined more than 20% since September 2008, as the pronounced U.S. recession takes hold and the nation's manufacturers pare back production to prevent excess inventory build-up and to cut operating costs.

Excluding the often volatile transportation component (which includes airplanes and cars), factory orders declined -0.9% in January. The ex-transportation metric declined -5.4% in December 2008.

Economists surveyed by Bloomberg News had expected January factory orders to decline -3.5%. Factory orders decreased -4.6% in November 2008 and -6.0% in October 2008.

Widespread manufacturing weakness

"The report still shows the same pattern of substantial weakness in equipment and software spending," Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, told Bloomberg News Thursday.

Economists follow the factory orders statistic because it provides one of the most comprehensive surveys of advance orders for durable goods -- how busy factories are likely to be in the period ahead. Factory orders also are a major value-added component of the U.S. economy.

Meanwhile, inventories fell 0.8%, the metric's fifth consecutive monthly decline; the inventory-to-shipment ratio also inched higher, to 1.46 from 1.44 -- a ratio that's too high given current demand conditions and sales trends in the U.S. economy.

In January, durable goods orders declined a revised -4.5%, civilian aircraft orders increased 168%, petroleum orders rose 9.8%, non-durable goods climbed 0.4%, computer orders declined -4.1%, and capital goods orders fell -5.7%.

Economic Analysis: Obviously, factory orders continue to show a U.S. economy in a pronounced recession. The U.S. manufacturing sector has been contracting since late 2007 and there's little in the January 2009 report to suggest a manufacturing upturn is likely in Q2 2009. Demand is light almost universally across the U.S. economy, save airplanes. Hence, given the relationship between manufacturing and a robust economic expansion, public policy officials must do everything within their power to stimulate demand and create engines of growth -- be they in the infrastructure, energy, technology, residential housing, commercial building or education sectors.

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