U.S. Factory Orders Fall, Business Spending Shows Signs of Stabilizing

Economic Indicators Reuters

New orders for U.S. factory goods fell for a second straight month in June on weak demand for transportation equipment and capital goods, but signs of stabilization in business spending offered some hope for struggling industries.

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The Commerce Department said on Thursday that new orders for manufactured goods declined 1.5 percent after a downwardly revised 1.2 percent decrease in May.

Economists polled by Reuters had forecast factory orders dropping 1.8 percent in June after a previously reported 1.0 percent decline in May.

The department also said orders for non-defense capital goods excluding aircraft increased 0.4 percent in June instead of the 0.2 percent gain reported last month. These so-called core capital goods are seen as a measure of business confidence and spending plans on equipment.

Core capital goods shipments, which are used to calculate business equipment spending in the gross domestic product report, fell 0.2 percent in June. They were previously reported to have slipped 0.4 percent in June.

Manufacturing, which accounts for about 12 percent of the economy, has been pressured by the residual effects of a strong dollar and weak global demand, which have undermined exports of factory goods. Production has also been hurt by businesses placing fewer orders as they try to clear an inventory glut.

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The sector has also been hurt by spending cuts by energy firms as they adjust to reduced profits from cheaper oil.

An outright drop in inventories and sustained weakness in business spending weighed on economic growth in the second quarter, with gross domestic product rising at a tepid 1.2 percent annualized rate after increasing at a 0.8 percent pace in the first three months of the year.

In June, orders for transportation equipment tumbled 10.5 percent, the biggest drop since August 2014. The largely reflected weak orders for aircraft. Orders for motor vehicles and parts increased 3.2 percent, the largest gain since July 2015.

Orders for machinery, which have been hurt by weak demand in the energy and agricultural sectors, rose 0.2 percent. Orders for electrical equipment, appliances and components gained 0.3 percent. Orders for computers and electronic products slumped 1.9 percent, the largest drop in more than a year.

Inventories of factory goods dipped 0.1 percent. Inventories have declined in 13 of the last 14 months. Shipments increased 0.7 percent. That lowered the inventories-to-shipments ratio to 1.35 from 1.36 in May.

Unfilled orders at factories decreased 0.8 percent after three straight months of increases.

 

(Reporting By Lucia Mutikani, Editing by Andrea Ricci (Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net))

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