Washington, DC, September 27, 2006--Despite increased demand for autos, orders for U.S.-made durable goods fell 0.5% in August as orders for aircraft, electronics, machinery, metals and electrical goods crumbled, the Commerce Department reported Thursday.
It was the first back-to-back decline in orders since early 2003. July's decline was revised lower to 2.7%.
Ominously, the report showed weak demand in almost every sector except autos, which is undergoing a traumatic restructuring and is not likely to contribute much to growth in the near-term.
Orders for core capital goods equipment - business investment goods - fell 0.3% in August. Shipments of core capital goods rose 0.3% after a 1.6% gain in July, an indication that business investment could be weaker than expected in the third quarter after a surprising drop in the second quarter.
Continued strength in capital spending is considered to be essential to the expected soft landing in the U.S. economy.
Economists were expecting a small gain of around 0.5% in orders.
Orders, while very volatile month-to-month, are considered a good leading indicator for manufacturing activity. The weak durable goods report supports the surprising weakness in last week's Philadelphia Fed sentiment index. Other gauges of factory strength, however, have held up fairly well as the economy slows from a break-neck pace.
Orders for durable goods are up 8.5% year-to-date. The figures are not adjusted for price changes.
Shipments of durable goods rose 1.9% in August, while unfilled orders - an indicator of future production - rose 0.4%. Inventories increased 0.2%.
Orders for transportation goods increased a healthy 3.7% as orders for motor vehicles rose 4.4%, rebounding from July's 6.9% plunge. Civilian aircraft orders fell 21.9%. Excluding transportation goods, new orders fell 2.0%, the biggest decline in a year.
Orders in other sectors were soft. Orders for electronics (excluding semiconductors) fell 4.7%. Orders for electrical equipment fell 9.7%, the biggest drop in more than four years.
Orders for machinery and primary metals each dropped 2.1%, while orders for fabricated metals increased 2.6%.
