MW: Factory orders drop 4% in August, most in 2 years
Demand drops, pushing inventories at factories higher
WASHINGTON (MarketWatch) - Demand for U.S. factory goods dropped at the fastest rate in two years in August on much lower orders for metals, machinery and vehicles, the Commerce Department reported Thursday.
Factory orders fell 4%, worse than the 3% drop expected by economists surveyed by MarketWatch. See Economic Calendar. Orders had risen 0.7% in July, revised down from the 1.3% estimate given a month ago.
The weaker-than-expected data add to the evidence that the U.S. economy is mired in a recession, and could prompt more calls for the Federal Reserve to cut interest rates again to stimulate growth. See full story.
Orders for durable goods fell 4.8% in August, revised lower from the 4.5% estimate provided a week ago. Shipments and orders for nondurable goods fell 3.3%, largely because of lower prices for crude oil and gasoline.
Excluding the 9.1% drop in transportation orders, factory orders fell 3.3%, the biggest drop since September 2001.
Orders for core capital equipment goods - the kind of tools businesses invest in order to expand or update their productive capacity - fell 2.4%, the biggest drop since January 2007. Shipments of core capital equipment - a key input for gross domestic product -- fell 2.1%.
Shipments of factory goods fell 3.5% in August, also the biggest drop in two years. Shipments of durable goods fell 3.8%, the most since February 2000.
With shipments down and inventories rising 0.6%, the inventory-to-sales ratio jumped to 1.26 from 1.21 in July, an indication that manufacturers have overproduced and must cut production unless demand returns.
Since the August data were collected, banks have cut back on their lending to other banks, and commercial paper volumes have fallen, an indication that credit for manufacturers and their customers could be drying up.
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There were few bright spots in the report. Orders for electronics rose 2%, boosted by a surge in orders for defense communications equipment and a 4% increase in orders for computers.
Orders for primary metals fell 9.6%, the largest drop in 15 years. Orders for machinery fell 6.6%.
Orders for transportation goods fell 9.1%, including a 10.6% drop in orders for motor vehicle parts and a 38% drop in orders for civilian aircraft.
