New US factory goods orders fell for a fifth straight month in December but a smaller than previously reported drop in business spending plans supported views of a coming rebound.
Other data showing better sales in January by the country's leading automobile manufactures also offered a silver lining for a sector that has taken a hit from weak global demand and falling crude oil prices.
"It suggests that activity will pick up in coming months," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The US Commerce Department said new orders for manufactured goods declined 3.4% as demand fell across a broad sector of industries. That followed a 1.7% decrease in November and exceeded economists’ expectations for a 2.2% drop.
The department also said orders for non-defence capital goods excluding aircraft - seen as a measure of business confidence and spending plans - slipped only 0.1% instead of the 0.6% drop reported last month.
Manufacturing is being constrained by weakening demand in Europe and Asia, as well as a strong dollar and falling crude oil prices, which have caused some companies in the energy sector to either delay or cut back on capital expenditure projects.
An ongoing labour dispute at the nation's West Coast ports, which has caused shipment delays, is also hurting activity.
Business spending on equipment in the fourth quarter was the weakest since mid-2009, helping to hold back the economy to a 2.6% annual growth pace.
In a sign of weakness, unfilled orders at factories slipped 0.8% in December, the first fall in ten months.
The soft trend in business investment likely persisted early into the first quarter, with a report on Monday showing a manufacturing sector gauge falling in January.
But there is cautious optimism that firming domestic demand will limit the slowdown in manufacturing.
General Motors today reported that January sales rose 18% to 202,786 vehicles, while Ford said sales were up 15% to 178,351, above analysts' expectations for 201,436 and 173,431, respectively.
Sales at Fiat Chrysler Automobiles rose 14% to 145,007 vehicles, also beating analysts' forecasts.
There was some good news in the factory orders report.
Shipments of non-defence capital goods orders excluding aircraft, used to calculate business equipment spending in the gross domestic product report, were revised up to show a 0.2% gain in December instead of a 0.2% fall.
Economists said that suggested capital expenditure in the fourth quarter was probably not as weak as initially thought.
Daniel Silver, an economist at JPMorgan said real equipment spending now looks to have declined at a annual rate of 1.3% rather than the 1.9% pace the government reported last week.
"Oil and gas industries appear to be only partially responsible for the recent weakness in the data, and it is likely that the stronger dollar and weaker growth abroad are also weighing on activity," said Silver.
But any boost to GDP growth from more shipments of these so-called core capital goods orders was likely to be offset by a 0.3% fall in manufacturing inventories.
The first decline in factory stocks in 18 months suggested the pace of inventory accumulation in the fourth quarter could be lowered by as much as three-tenths of a percentage point, economists said.