August factory orders dip but excluding transportation, demand shows solid increase

By Martin Crutsinger, AP
Monday, October 4, 2010

August factory orders decline 0.5 percent

WASHINGTON — Orders to U.S. factories fell in August, reflecting a big drop in demand for commercial aircraft. But outside of the volatile transportation sector, orders rose for the first time since March.

Factory orders fell 0.5 percent in August, the third drop in the past four months, the Commerce Department said Monday. Orders had been up 0.4 percent in July.

Meanwhile, a real estate trade group reported that the number of people who signed contracts to buy homes rose in August for the second straight month but remained far below last year’s pace.

The National Association of Realtors said that its index of sales agreements for previously occupied homes rose 4.3 percent to a reading of 82.3 in August. That’s still more than 20 percent below the pace in the same month a year ago.

Taken together, the new reports on manufacturing and housing were viewed as further evidence that the economy is continuing to plod along at a modest pace.

“With underlying economic conditions still so weak, a robust housing recovery remains highly unlikely,” said Paul Dales, U.S. economist at Capital Economics.

The weakness in manufacturing in August came from a big decline in demand for commercial aircraft and a drop in demand for motor vehicles. However, outside of transportation, orders posted a solid 0.9 percent increase.

The strength outside of transportation reflected big gains in demand for various types of heavy machinery such as oilfield drilling equipment and turbines and power generators. Demand was also up for computers and various types of electronic equipment.

Manufacturing has been a standout performer so far in an otherwise subpar economic recovery as strong overseas demand for U.S. manufactured goods has helped to offset sluggish domestic consumer spending.

Orders in the transportation sector fell 10.2 percent in July. That reflected a 40.2 percent drop in demand for commercial aircraft, reflecting a big falloff in orders to Boeing Co. Commercial aircraft orders had soared 69.1 percent in July.

Orders for motor vehicles and parts dropped 3.6 percent in August as that industry continues to struggle with lackluster demand.

The 0.9 percent rise in orders excluding transportation was the first increase since a 3.8 percent jump in March. Orders excluding transportation had fallen 0.9 percent in July after declines of 0.6 percent in June. 1.2 percent in May and 0.7 percent in April.

These declines reflected a slowdown in the U.S. economy that raised concerns that the country could be dipping back into recession. However, various stronger-than-expected readings in August have allayed the concerns about a new recession.

But economists believe economic growth will remain anemic with the gross domestic product expected to expand at a sluggish 2 percent in the second half of this year, up only slightly from the 1.7 percent GDP growth rate turned in during the April-June quarter.

Growth that slow will not be enough to make a significant dent in the unemployment rate which stood at 9.6 percent in August and is expected to creep up to 9.7 percent in September. The September report will be released Friday.

Orders for durable goods, items expected to last at least three years, fell 1.5 percent in July while demand for nondurable goods, products such as food, clothing, chemicals and paper, rose 0.3 percent after a 0.1 percent drop in July.

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