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Weak orders point to sharp slowdown in U.S. manufacturing Add to ...

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.

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

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 per cent.

The sharp drop underscored the weakness in the economy, whose growth pace in the second-quarter was cut down to a 1.3 per cent annual pace from 1.7 per cent, mainly because of a drought in the Midwest, and dimmed hopes of a pick-up in activity.

“It just shows the manufacturing side of the economy continues to labor here, and in fact, contract. Orders are so critical to what is ahead,” said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.

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 fel l for the first time after five weeks of increases.

The labour market has been mired in weakness as worries about higher taxes and deep government spending cuts in January, the ongoing debt problems in Europe and slowing global growth lead 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 (U.S.) worth of mortgage-backed securities each month until it sees a sustained upturn in the labor market.

But the good news on the labor market was eclipsed by the weak durable goods report. Though non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, halted two straight months of hefty declines, that was not much of a silver lining.

Shipments of these goods, which are used to calculate equipment and software spending in the gross domestic product report, fell for a second straight in month in August. The weakness suggested third-quarter economic growth would probably not improve much from the 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.

Boeing received only one aircraft order in August, down from 260 in July, accounting for the bulk of the decline in durable goods orders. Demand for motor vehicles also fizzled.

Transportation equipment tumbled 34.9 per cent after racing ahead 13.1 per cent in July. Excluding transportation, orders fell 1.6 per cent after dropping 1.3 per cent the prior month. Economists had expected this category to rise 0.3 per cent after a previously reported 0.6 per cent fall.

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