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October Durable Goods Orders Drop

Wed, 11/24/2010 - 4:53am
Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- Orders to U.S. factories for long-lasting manufactured goods plunged in October by the largest amount in 21 months, reflecting widespread weakness in a number of areas.

Orders for durable goods dropped 3.3 percent last month, the Commerce Department reported Wednesday. The setback was the sharpest decline since demand fell 8 percent in January 2009, a time when the economy was caught in the worst recession since the 1930s. Excluding transportation, which is often volatile, orders were down 2.7 percent, the biggest drop for this measure since March 2009.

The unexpectedly sharp declines raised questions about the strength of manufacturing, which has been one of the economy's standout performers.

It also caught analysts by surprise. It marked the second drop in the past three months. Orders were down 0.8 percent in August and then rose a revised 5 percent in September, a gain that reflected a huge jump in demand for commercial aircraft.

In the latest report, a 4.5 percent drop in orders for nondefense capital goods, excluding aircraft, was of special concern. This category is viewed as a good proxy for business investment plans. It was the biggest drop since a 5.3 percent fall in July.

The weakness in October was led by a big plunge in demand for military aircraft, which fell 25.1 percent. Orders for commercial aircraft, which had surged 112.6 percent in September, fell 4.4 percent last month. Demand for autos fell for a third month, dipping 0.7 percent.

Total orders in transportation were down 5.2 percent last month. The 2.7 percent fall in orders outside of transportation reflected weakness in a number of categories.

Orders for primary metals, such as steel, declined 0.8 percent, while demand for heavy machinery fell 3.9 percent.

Orders for computers and electronic products fell 7.7 percent as demand for communications equipment dropped by 12.3 percent, the largest amount in two years.

All of the weakness, if it is repeated in coming months, would raise doubts about the durability of the recovery in manufacturing. U.S. manufacturers have been benefiting from rising global demand, which has helped offset lagging sales in the United States.

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