Factory Orders Plunge as Credit Strains Hit

Washington, DC, Oct. 2, 2008--Orders to U.S. factories fell by the largest amount in nearly two years in August as the credit strains began to hit manufacturing with full force.

The Commerce Department reported that orders for manufactured goods dropped by 4 percent in August, compared to July. That's a much worse performance than the 2.5 percent decline that economists had expected. It was the biggest setback since a 4.8 percent plunge in October 2006.

The weakness was led by big declines in orders for aircraft, down 38.1 percent, and autos, which fell by 10.6 percent, the worst performance in nearly six years.

Orders for non-defense capital goods excluding aircraft, considered a good indication of business investment plans, fell by 2.4 percent, the biggest setback in this category 19 months. It's an indication that businesses are slashing their investment plans in the weak economy, and growing credit strains are making it hard for companies to get loans to expand and modernize.

The report on manufactured goods showed that durable goods, items expected to last three years, dropped by 4.8 percent in August. Orders for nondurable goods, items such as petroleum products, food and clothing, fell by 3.3 percent.