Durable Goods Orders Fall In August

Wed, 09/28/2011 - 5:49am
Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- Companies ordered more machinery, computers and communication equipment in August, a positive sign for the slumping U.S. economy.

An increase in demand for those kind of longer-lasting factory goods suggests businesses are sticking with their investment plans, despite slow growth and weak consumer spending.

Overall orders for durable goods slipped 0.1 percent last month. The modest decline was largely due to an 8.5 percent drop in orders for autos and auto parts. In July, demand for those goods surged 10.2 percent -- the biggest increase in eight years.

At the same time, a category that measures business investment plans rose 1.1 percent last month.

Durable goods are products expected to last at least three years. Orders typically fluctuate from month to month.

Manufacturing had been one of the leading sectors since the recession officially ended two years ago. But factory growth slowed this spring and summer, partly because of supply disruptions from Japan, but also because consumer demand weakened.

Consumers have been paying more for food and gas, while receiving small raises. As a result, many have cut back on discretionary purchases, such as computers, appliances and furniture. That has slowed growth.

The economy expanded at an annual rate of just 0.7 percent in the first six months of this year, the weakest growth since the recession ended.

Slow growth has led many employers to delay hiring plans. In August, employers added zero net jobs, and the unemployment rate stayed at 9.1 percent for the second straight month.

Economists don't expect growth to pick up much in the second half of the year.

The forecasting panel for the National Association for Business Economics predicts 2.2 percent growth in the second half of this year. For the full year, it predicts only 1.7 percent growth. That would be down from the 3 percent growth last year. And it's well below the pace needed to make a significant dent in the unemployment rate.

Other manufacturing data have been mixed.

Factory output rose in August, according to the Federal Reserve. But nearly all of the gain was from a 2.6 percent rise in the production of autos and auto parts.

Regional Fed surveys showed that manufacturing continued to weaken in the Northeast and Mid-Atlantic area in September.

The Federal Reserve Bank of New York said factory conditions in that region worsened for a fourth straight month. Businesses saw fewer new orders and paid higher prices. Factories in the region employed fewer people and their remaining employees worked fewer hours, the New York Fed said.

The Federal Reserve Bank of Philadelphia said manufacturing in that region shrank in September for the third time in four months.

Cliff Waldman, Economist for the Manufacturers Alliance/MAPI, has provided some analysis of the recent report:

"The August report on demand for long-lasting manufactured goods well reflects the mix of uncertainties in the U.S. and global economic climates. A 1.1 percent increase in new orders for nondefense capital goods, excluding aircraft, a proxy for business equipment spending, suggests that -- while sluggish -- capital spending has been strong enough to keep a troubled U.S. economy from sliding into what could be a difficult and damaging new recession," said Cliff Waldman, Economist for the Manufacturers Alliance/MAPI. "It was especially encouraging to see at least a modest degree of energy in capital investment during a month that featured many assaults on business and consumer confidence, from a debilitating debate on the U.S. debt ceiling to suggestions that the Eurozone sovereign debt quagmire was spinning out of policymakers' control.

"Nonetheless, the August report shows that manufacturing activity is clearly moderating as global economic growth slows," he added. "Total new orders for durable goods fell by 0.1 percent, with and without the volatile transportation component. And there was notable weakness in primary metals, fabricated metals, and machinery demand, all of which are industry sectors that produce integral components of a wide range of manufacturing supply chains.

"Earlier in this tepid U.S. economic recovery, the manufacturing sector was able to buck the trend of general economic weakness because of a sharp rebound in inventory accumulation and a faster than expected recovery in the growth of the emerging markets that have become increasingly important for U.S. manufacturing profitability," Waldman noted. "But as the inventory swing abates and as global growth slows, the factory sector is facing much the same risks as the rest of the economy, from the burden of housing and labor market difficulties to the threats posed by an increasingly difficult financial and economic crisis in the Eurozone."


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