Factory Orders Suffer Biggest Dip in 5 Months

Orders to U.S. factories in August took their biggest nose dive in five months as demand for defense equipment plummeted and American manufacturers continued to be battered by foreign competition, the government reported Wednesday.

The Commerce Department said orders for manufactured goods declined $2.8 billion to an August total of $191.78 billion. The 1.4% decrease erased a revised 1.4% gain in July that had come from a boom in demand for military equipment.

The highly volatile defense category shot up 40% in July, only to fall 26.6% in August as orders for military aircraft, ships and tanks all declined.

Without the big movement in defense, orders would have been unchanged in August and would have dipped 0.1% in July.

Construction Gains

In a separate report, the Commerce Department said construction spending shot up 1.1% in August, the best showing since a 1.6% rise in April. Strength in single-family home construction and non-residential building pushed spending to a seasonally adjusted annual rate of $382.2 billion, 8.2% higher than a year ago.

However, analysts said this year’s construction boom is likely to fade in coming months as widespread overbuilding of offices and apartments and adverse impacts from the new tax bill take their toll.

The August construction figures showed that multifamily housing fell 0.9% in August from July, while office construction was down 8.3% from a year ago.

The big drop in factory orders reflected continued weakness, analysts said, coming from the huge trade deficit. American manufacturing jobs have declined by 168,000 since January as U.S. plants have laid off workers in the face of stiff competition from imports, despite a decline in the dollar’s value.

Doug Handler, an economist for Wharton Econometrics, said that despite the weakness in August, economic growth would strengthen considerably in early 1987.

“We think there will be a pickup in the first half of the year. We are starting to see signs the trade sector is coming around,” Handler said, noting a report Tuesday that the U.S. trade deficit declined 26.2% in August from an all-time high in July.

Wharton is predicting the economy, as measured by the gross national product, will grow at approximately a 4% rate in the first half of 1987, almost double the sluggish growth rate of the past two years.

The August decline in total orders was the sharpest one-month drop since a 2.8% decrease in March.

Orders for durable goods, items expected to last three or more years, fell 3.4% in August. This was a weaker showing than an advance report a week ago that put the decline at 2.6%.

Orders for non-durable goods climbed 0.6% after a 0.8% drop in July.

The key category of non-defense capital goods fell 4% in August following a 3.7% increase in July. This category gives clues to industry plans to expand and modernize production facilities.

The Reagan Administration is counting on a strong rebound in business capital investment to help propel growth in the months ahead, but private economists see little chance for strength, given the low operating rates of most industries and the negative impact on investment from the new tax bill.

“We believe capital spending in 1987 will be essentially flat, continuing the performance of this year,” said John Hagens, an economist at Chase Econometrics of Bala Cynwyd, Pa.,

By sector, orders for transportation equipment fell 8.9% in August, with most of the decrease due to declines in defense orders.

Orders for electrical machinery fell 6.1%, with the biggest decline in defense communication equipment. Orders for non-electrical machinery dropped 3.3%.

Orders for primary metals bucked the general downward trend, posting a 12.9% gain, with the steel industry accounting for two-thirds of the increase.

Shipments of manufactured goods dropped 0.2% in August to $193 billion, the second month in a row that shipments have fallen.