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Workers cut fabric at the Karen Kane clothing company in Los Angeles, California June 30, 2011. (LUCY NICHOLSON/REUTERS)
Workers cut fabric at the Karen Kane clothing company in Los Angeles, California June 30, 2011. (LUCY NICHOLSON/REUTERS)

U.S. factory orders post largest fall since recession Add to ...

Demand for U.S. factory goods in August fell by the most since January 2009, but the second straight month of gains in orders outside transportation hinted at a less rapid loss of momentum in manufacturing activity.

The Commerce Department said new orders for manufactured goods tumbled 5.2 per cent – the biggest drop since the recession – dragged down by a slump in demand for transportation equipment that was telegraphed in last week’s report on orders for long-lasting manufactured goods.

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Factory orders had risen 2.8 per cent in July and economists had expected them to drop 5.8 per cent in August. Excluding transportation, orders rose 0.7 per cent in August after rising by the same margin the prior month.

Manufacturing has carried the economic recovery and while activity has cooled significantly in recent months, there are so far little signs of a hard landing.

The Institute for Supply Management’s index of national manufacturing activity last month climbed above the 50 mark – which separates contraction from expansion – after three straight months below 50.

The Commerce Department report showed orders for transportation equipment tumbled 34.9 per cent in August on sharply weak orders for civilian and defense aircraft.

New orders for civilian aircraft sank 101.8 per cent, which includes cancellations, after rising 51.1 per cent the prior month. Aircraft orders are extremely volatile from month to month. Defense aircraft orders fell 8.1 per cent after declining 11.4 per cent in July.

Orders for motor vehicles and parts were also a drag, falling 14.9 per cent after surging 20.5 per cent in July. Orders are likely to rebound in September after auto sales touched their highest level since March 2008.

Shipments fell in August after rising in July. With both orders and shipments declining in August, inventories rose 0.6 per cent after advancing by the same margin the prior month. Unfilled orders at U.S. factories fell after two straight months of gains.

The department said the plunge in orders for durable goods – manufactured products expected to last three years or more – was unrevised at 13.2 per cent.

Orders for non-defense capital goods excluding aircraft – seen as a measure of business confidence and spending plans – rose 1.1 per cent in August.

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