ISM: Expired Tax Credit Weighs on Business Spending

U.S. factory orders fell in January for the first time in three months due the expiration of a tax credit for businesses, which resulted in a reduction in capital goods orders.

Bookings fell by 1 percent, short of the 1.5 percent drop forecast by a survey of economists done by Bloomberg LP. Demand for capital goods dropped 3.9 percent after a one-year tax break for business investment expired at the end of 2011. Orders for durable goods fell 3.7 percent.

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Despite decreases for orders of machinery and equipment, increasing demand for automobiles will likely maintain growth in manufacturing. Economists note that rising oil prices remain an ongoing concern for the industry.

According to the Institute for Supply Management, U.S. factories have shown steady growth for the past two and a half years. Even with the January drop, overall demand for factory goods was $462.6 billion. At this level, demand is 37.7 percent higher than the recession low in March 2009 and only 4.6 percent lower than the peak in June 2008.

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