US durable orders plunge in August; biggest drop since early 2009

By Martin Crutsinger

Associated Press

Published: Thursday, Sept. 27 2012 7:38 a.m. MDT

In this Tuesday, July 24, 2012 photo, forklift driver Clyde Boyce takes inventory in the warehouse at a Michelin tire manufacturing plant in Greenville, S.C.

Associated Press

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WASHINGTON — Demand for long-lasting manufactured goods plunged in August because of a huge drop in volatile commercial aircraft orders. But in a hopeful sign, orders that reflect business investment plans rose.

The Commerce Department said Thursday that total durable goods orders fell 13.2 percent in August. That's the biggest drop since January 2009 when the country was in recession. Aircraft orders fell by nearly 102 percent, pulling down the headline figure.

Core capital goods orders rose 1.1 percent. That's the first increase since May, although it follows steep declines in the previous two months.

Durable goods are items that are expected to last for at least three years.

Paul Ashworth, chief U.S. economist at Capital Economics, said the August decline is not a reason to "panic." He said many economists were expecting a sharp drop in aircraft orders after 260 planes were ordered in July.

Excluding transportation, durable goods orders fell 1.6 percent in August. The figure was dragged down by a 40.1 percent drop in defense orders.

"The massive ... slump in US durable goods orders in August was largely due to a drop back in the notoriously volatile commercial aircraft component," Ashworth said. Ashworth also noted that motor vehicle orders fell 10.9 percent in August, but that reversed a 12.1 percent spike in July orders, "when fewer than normal auto plants shut down for summer retooling."

Orders tend to fluctuate from month to month. Overall, total orders fell to $198.5 billion in August. That's still 33.5 percent above the recession low hit in April 2009.

U.S. manufacturing, which had helped pulled the economy out of the Great Recession three years ago, has weakened since the spring. Factories have been hurt by a decline in consumer spending and slower global growth that has cut demand for U.S. exports.

Less factory production has sapped a critical source of growth and jobs in the United States. The trend is expected to keep growth and hiring tepid through the November elections.

The economy grew at an annual rate of just 1.3 percent in the April-June quarter, the Commerce Department said Thursday in a separate report. That's much lower than its previous estimate of 1.7 percent and too weak to lower the unemployment rate.

Many economists below growth won't exceed 2 percent for the rest of the year.

High unemployment and sluggish growth prompted the Federal Reserve last week to announce several major steps to boost the economy. Chairman Ben Bernanke said the Fed will buy $40 billion of mortgage-backed securities a month until there is "substantial" improvement in the job market.

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