April 2 (Bloomberg) -- Orders placed with U.S. factories rose in February for the first time in seven months, reflecting a rebound in demand for construction machinery, computers and air conditioning equipment that signals the worst of the manufacturing slump has passed.

The 1.8 percent increase followed a 3.5 percent drop in January that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment such as cars and aircraft, orders rose 1.6 percent.

A pickup in bookings combined with plunging stockpiles are setting the stage for gains in output in coming months that may stem the slide in factory employment. Stepped up efforts by the Obama administration and Federal Reserve to ease the credit crunch may help revive economic growth later this year.

“The speed of contraction within the manufacturing sector appears to be tapering off,” Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said before the report. “To be sure, recovery is likely to be slow and halting.”

Factory orders were forecast to rise 1.5 percent, after a previously reported 1.9 percent drop in the prior month, according to the median estimate of 64 economists surveyed by Bloomberg News. Estimates ranged from a decline of 1.5 percent to an increase of 4.2 percent.

Another report today showed the number of Americans filing unemployment claims unexpectedly rose last week to 669,000, the highest level since 1982, and those staying on benefit rolls jumped to a record as companies kept cutting jobs to trim costs.

Stocks Rose

Stocks rose for a third day as accounting regulators approved a rule change that may improve bank profits and world leaders neared agreement on measures to fight the global recession. The Standard & Poor’s 500 Stock Index soared 2.8 percent to 833.45 at 10:09 a.m. in New York. Treasuries fell, with yields on benchmark 10-year notes rising to 2.71 percent.

Orders for durable goods, which make up just over half of total factory demand, climbed 3.5 percent, after a 7.8 percent decrease the previous month.

Bookings for non-durable goods including food, petroleum and chemicals rose 0.3 percent in February following a 0.5 percent gain a month earlier.

Machinery demand, including construction, industrial and air conditioning equipment, increased 13 percent, the biggest jump since 1994.

Car Purchases

Demand for motor vehicles and parts rose 1.1 percent in February, and improving sales indicate gains may continue.

Auto purchases last month were stronger than forecast, rising to a 9.9 million annual pace from a three-decade low of 9.1 million in February, according to industry figures released yesterday. Carmakers were forced to spend a record $3,169 on incentives, surpassing the previous mark set in September 2004, to entice consumers.

“It’s one month in a row, and it’s of interest and there may be a small sign of hope,” Chrysler LLC President Jim Press said on a call with reporters yesterday. “But if you look at the trends out there, there’s a lot of concern.”

President Barack Obama earlier this week gave General Motors Corp. and Chrysler deadlines to “fundamentally restructure” or lose government aid that has kept them running. He rejected the companies’ recovery plans and forced GM Chief Executive Officer Rick Wagoner to resign.

In addition to providing funds to the U.S. automakers, the administration is giving aid to financial institutions and initiated a stimulus plan directed at creating or saving jobs and providing tax cuts to some Americans.

Capital Goods

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, jumped 7.1 percent. Shipments, used to calculate gross domestic product, increased 0.6 percent after plunging 9.4 percent in January.

The government will issue its advance estimate on first- quarter gross domestic product at the end of the month. Economists surveyed by Bloomberg News in March forecast the economy will contract 5.2 percent in the first three months of this year and 2.5 percent for all of 2009.

Factory inventories dropped 1.2 percent, and manufacturers had enough goods on hand to last 1.45 months at the current sales pace, down from 1.46 months in January.

Some reports suggest efforts at trimming inventories may be starting to pay off. The Institute for Supply Management said yesterday that its manufacturing inventory gauge fell to 32.2, the lowest in more than 26 years, while the new orders measure rose to 41.2.

“The momentum is still downward but the rate is slowing a bit and that helps,” Norbert Ore, chairman of ISM’s factory survey said in a conference call yesterday. “We’re probably two, three months away from seeing significant improvement in new orders that would be driven by customer inventories coming in line.”

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: April 2, 2009 10:15 EDT