U.S. factory orders increase more than expected, shipments surge

New orders for U.S.-made goods rose more than expected in December and shipments surged, offering more evidence of a pickup in manufacturing activity as an earlier drag from lower oil prices and a strong dollar fades.

Factory goods orders increased 1.3 percent, the Commerce Department said on Friday after a revised 2.3 percent decline in November. Economists polled by Reuters had forecast factory orders rising 1.0 percent in December after a previously reported 2.4 percent decline in November.

Total shipments of manufactured goods increased 2.2 percent, the largest increase since December 2010, after rising 0.3 percent in November.

The department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - rose 0.7 percent in December instead of the 0.8 percent increase 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, increased 1.0 percent in December as previously reported.

A report on Wednesday showed factory activity accelerated to a more than two-year high in January, with manufacturers reporting increases in new orders and employment. Manufacturing accounts for about 12 percent of the economy.

A collapse in oil prices in 2015 and a surge in the dollar weighed on manufacturing for much of last year, with most of the pain coming through sharp cutbacks in business spending on equipment. Oil prices have since risen above $50 per barrel, lifting some of the fog off manufacturing.

The government reported last Friday that business spending on equipment increased at a 3.1 percent annualized rate in the fourth quarter, the first increase in over a year.

In December, orders for transportation equipment fell 2.5 percent, reflecting a 64 percent plunge in defense aircraft orders. Outside transportation, orders for machinery rose 0.7 percent.

Orders for computers and electronic products surged 2.6 percent, while bookings for electrical equipment, appliances and components fell 0.6 percent.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)