U.S. factory orders drop 4% in August

Orders to U.S. factories plunged 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 4% in August, compared with July. That’s a much worse performance than the 2.5% decline that economists had expected. It was the biggest setback since a 4.8% plunge in October 2006.

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

Orders for nonmilitary capital goods excluding aircraft, considered a good indication of business investment plans, fell 2.4%, the biggest setback in this category in 19 months. It’s a sign 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.

An earlier report Thursday showed that the number of newly laid-off workers filing claims for unemployment benefits rose to 497,000 last week, an increase of 1,000 from the previous week. It was the highest level for jobless claims since just after the Sept. 11, 2001, terrorist attacks.

The Labor Department is scheduled today to release its monthly report on unemployment. The expectation is that the report will show that in September layoffs rose by 100,000, the largest increase this year, with the unemployment rate holding at 6.1%.

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

The dismal report on orders for August followed a report Wednesday from the Institute for Supply Management showing that manufacturing activity fell to the lowest level since the aftermath of the 2001 attacks.