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Tags: orders | us | manufacturing | economy

Weak Orders Point to Sharp Slowdown in US Manufacturing

Thursday, 27 September 2012 09:32 AM EDT

Orders for long-lasting U.S. manufactured goods fell sharply in August, suggesting the main engine of economic growth was stalling and offsetting the hopeful sign provided by a drop in new claims for jobless benefits.

The Commerce Department said on Thursday durable goods orders dived 13.2 percent, the largest drop since January 2009, when the economy was in the throes of a recession. The decline primarily reflected weak demand for aircraft and automobiles, although orders were down for a wide range of goods.

Excluding transportation, orders were off 1.6 percent.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

"It just shows the manufacturing side of the economy continues to labor here, and in fact, contract," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.

Economists polled by Reuters had expected orders for durable goods — items from toasters to aircraft that are meant to last at least three years — to fall 5 percent, with non-transportation orders rising marginally.

Underscoring the economy's weakness, the government revised its measure of second-quarter growth to just a 1.3 percent annual pace from 1.7 percent, largely to reflect the impact a drought in the Midwest had on farm inventories.

Housing has been one of the economy's relative bright spots, but a report showing that contracts to buy previously owned U.S. homes fell in August provided a counterpoint to other recent data on housing that has shown activity picking up.

However, not all the news on Thursday was downbeat.

A separate report from the Labor Department showed the number of Americans filing new claims for jobless benefits fell 26,000 last week to a two-month low of 359,000. The four-week moving average for new claims, a better measure of labor market trends fell for the first time after five weeks of increases.

The labor market has been mired in weakness with worries about higher taxes and deep government spending cuts in January, ongoing debt problems in Europe and slowing global growth leading employers to be cautious about ramping up hiring.

Sluggish job gains and stubbornly high unemployment spurred the Federal Reserve this month into launching a third round of bond purchases to drive down already low interest rates.

The U.S. central bank vowed to buy $40 billion worth of mortgage-backed securities each month until it sees a sustained upturn in the labor market.

Mortgage finance company Freddie Mac said those purchases helped push the average rate on a 30-year fixed rate mortgage down to a record low of 3.40 percent this week.

In a preliminary estimate of an upcoming annual revision to its main employment measures, the Labor Department said it likely undercounted job growth in the 12 months through March by 386,000.

But the good news on the labor market was eclipsed by the weak durable goods report.

Orders for non-defense capital goods excluding aircraft, a proxy for business spending plans, rose 1.1 percent in August, only partly reversing a 5.2 percent slide the prior month.

What's more, shipments of these goods, which are used to calculate equipment and software spending in the GDP report, fell for a second straight month. The weakness suggested third-quarter economic growth would probably not improve much from April-June's anemic pace.

Manufacturing, which has been the main driver of the recovery from the 2007-09 recession, has been hit by turbulence from sluggish domestic and global demand.

Fears that the U.S. Congress could fail to avert a fiscal cliff — the $500 billion or so in expiring tax cuts and government spending reductions set to take hold in 2013 — have also left businesses with little incentive to boost production.

Fitch Ratings said on Thursday that the sharp tightening of U.S. fiscal policy could tip the world into recession.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

© 2023 Thomson/Reuters. All rights reserved.

Orders for long-lasting U.S. manufactured goods dropped sharply in August suggesting the main engine of economic growth was stalling, offsetting hopeful signs of an improvement in the labor market.
Thursday, 27 September 2012 09:32 AM
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