Demand for big-ticket manufactured goods plunged in August by the largest amount in seven months, with widespread weakness signaling a slowdown in the nation’s industrial sector.
The Commerce Department reported Wednesday that orders for durable goods, everything from commercial jetliners to home appliances, fell 4.9 percent in August, the biggest decline since a 6.1 percent fall in January.
It was far larger than the 3.5 percent drop that economists had been expecting and resulted from across-the-board decreases in a number of categories. The concern is that the steep downturn in housing and turbulence in financial markets could start to affect the economy more broadly, raising the risks of a recession.
“The relatively broad-based decline in big-ticket item demand is another sign of the softening economy,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Of particular concern, orders in the category considered a proxy for business investment plans edged down 0.7 percent in August, the second decline in the past three months. Business equipment spending has been one of the bright spots for the economy this year.
“The report makes us a little more worried about business investment in the second half,” said Adam York, an economist at Wachovia Corp. in Charlotte. “Businesses are probably making decisions a little more deliberately than they did before the credit crunch.”
Orders for transportation equipment fell 11.2 percent, the biggest retreat since January. The weakness was led by a 41 percent drop in demand for commercial aircraft. Chicago-based Boeing Co. reported fewer orders in August after a big surge in both June and July.
Orders for motor vehicles and parts dropped 6.2 percent last month after jumping 10.5 percent in July. Offsetting the weakness somewhat, demand for military aircraft surged 43.2 percent.
Excluding the volatile transportation category, orders fell 1.8 percent. Economists prefer to track the durable goods figures excluding transportation because orders for aircraft and automobiles can vary widely from month to month, obscuring underlying trends in spending.
Orders fell in a large number of categories, including primary metals such as steel, machinery and communications equipment. Demand was up for computers and electrical equipment.
One bright spot in the report was that unfilled orders for capital equipment rose 1.2 percent, suggesting manufacturers had enough of a backlog to keep production lines busy in coming months. Inventories of all durable goods dropped 0.1 percent, the first decline since February 2006.
The drop in inventories “should set the stage for an eventual pickup in production, especially with unfilled orders continuing to surge,” David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley, said in a note to clients.
