Factory Orders Decline as U.S. Export Boom Falters

Factory orders dropped 1.7% in July to their lowest level for the year as the dollar’s recent strength checked the American export boom, the Commerce Department said Thursday.

A key component, durable goods orders, dropped 2.2%, exceeding the 1.9% fall estimated by the department in an Aug. 22 report.

The drop in factory orders was nearly twice as deep as the 0.9% decline that economists had forecast. However, excluding volatile military equipment, July orders were down 1.1%.

The decline brought the level of total factory orders to $231.26 billion in July, adjusted for seasonal changes, down from $235.16 billion the previous month.

While the drop raised fresh concerns about the strength of the manufacturing sector, other parts of the economy continue to show vigor.

Seven Years of Growth

Economists say consumer spending, which accounts for two-thirds of economic activity, remains strong, spurred by a drop in interest rates earlier in the summer. That has helped offset sluggishness in manufacturing.

“The total story is that growth is decent enough now to keep us out of a recession,” said Martin Mauro, a senior economist at Merrill Lynch Economics.

The economy, approaching the end of its seventh full year of expansion, appears headed for a so-called soft landing, in which growth continues at a moderate pace without feeding inflation.

The Commerce Department reported Wednesday that personal income and spending rose 0.7% each in July. Earlier this week, it revised the gain in the second-quarter gross national product to a healthy 2.7% annual rate, up from a 1.7% rate previously estimated.

Manufacturers, however, are losing some of their recent competitive advantage as the dollar has risen against foreign currencies, making American goods relatively more expensive.

Interest rates, which are high compared to overseas rates, and weakness in the yen because of political troubles in Japan, have lifted the dollar about 11% since late April.

Decline in Computers

While monthly trade figures still show American exports rising, the increases are only about half what they were earlier this year and in 1988.

The July orders report had some positive elements. The department revised June factory orders to show a 0.6% gain, instead of the 0.4% initially reported.

Most of the decline in July durable goods was in computers and other business equipment. Defense orders, which are traditionally volatile, dropped 14.5% after rising 18% in June.

Orders for transportation goods rose 2.6% in July as a large increase in aircraft orders offset declines in orders for cars, ships and tanks.

Orders for non-durable goods were down, slipping in most categories for an overall decline of 1.1% after June’s 0.2% decrease.

Manufacturers’ inventories rose 1.1% in July for the largest increase in more than five years, while shipments fell 1.9%, the largest drop since March, 1986.

The trend suggests an unwanted buildup in stocks, which could spell more trouble for manufacturing in the months ahead, Mauro said.