New orders at U.S. factories were off 0.9 percent in March as February's initial gains were revised down. The net result for the two-month period is a decrease of 0.2 percent. We still expect double digit declines in equipment & software spending through 2009, with auto shutdowns weighing most heavily on manufacturing in coming months.

There Will be Some Bumps on the Road to Recovery

- Non-defense capital goods orders ex-aircraft, a key measure of business demand, added 0.4 percent to February's gain-the first back-to-back increase since last summer. While any sign of strength is welcome, it is too early for a lasting turnaround.

- Auto-makers will be under even greater pressure as restructuring and extended summer shutdowns weigh on factory data.

Falling Inventories and Survey Data Offer Hope

- Inventories have been steadily coming down - falling in each of the last three months. While this weighed heavily on first quarter GDP, it could set the stage for a lasting recovery in manufacturing. As stockpiles are depleted, businesses have to go back to work and production can resume.

- In a separate release, the ISM manufacturing survey showed its third straight increase in new orders, another positive.