Key Plant-Output Barometer Drops : Economy: Orders for high-priced durable goods fell 3.4% during July, another indication of sluggishness.

Orders for expensive manufactured goods plunged in July, the government said Wednesday in a report signaling that the economy is unlikely to improve much as the presidential campaign swings into high gear.

The Commerce Department said orders for durable goods fell 3.4% last month--the biggest decline in six months--and order backlogs fell for an 11th straight month, both signs of grim prospects for job and income gains.

President Bush, who already has seen his momentum from last week’s nominating convention evaporate--he once again trails Democratic challenger Bill Clinton by a wide margin in polls--is promising more job training and tax cuts if he is re-elected.

But analysts say lack of clear policy prescriptions from either Bush or Clinton is deepening consumer pessimism about their jobs and causing spending to spiral down just as a manufacturing revival loses steam.

“If this continues much longer, businesses will find it more difficult to make profits,” said economist Lawrence Hunter of the U.S. Chamber of Commerce. “Capacity will have to be sold off at bargain prices through shutdowns or mergers.”

The key factor in last month’s orders weakness was a 15% drop in demand for transportation goods, mainly commercial aircraft. It was the biggest tumble for these goods since a 17.5% decline last September.

Excluding transportation, durables orders rose a slight 0.7% after rising 3.2% in June.

But orders for industrial machinery were down 1.9% and primary metals orders fell an identical percentage from June while defense orders dipped a sharp 26.4%.

“The bottom line is that no sector is robust enough to give the economy a sustained push,” said Jack Albertine of Albertine Enterprises Inc. in Washington.

Durables orders had risen 2.8% in June after falling 2.1% in May, so July’s fall was a resumption of a seesaw pattern of very weak recovery from the recession.

“Instead of improving markedly, the recovery is more likely to peter out,” as happened last year when early signs of strength faded in the second half, Hunter said.

The private Conference Board said Tuesday that consumer confidence in the economy has slipped to its lowest level since March. That means there is scant chance of a pickup in the growth rate in the months ahead, it said.

Lynn Reaser, an economist with First Interstate Bancorp in Los Angeles, said the economy is being battered by the dual forces of weaker consumer spending plus slowdowns in Europe and Japan.

The pullback in consumer spending--the fuel for two-thirds of national economic activity--showed up again in August as mid-month car and light truck sales rose a disappointing 10.2% from the weak levels of a year ago.

That left sales at an annual rate of 6.2 million, well under the 7 million mark that is considered a sign of vitality in this big consumer sector.

Orders for non-defense capital goods, an indication of business investment in new equipment, fell 7% last month after rising 1.7% in June.

Durable Goods

New Orders

Billions of dollars, seasonally adjusted

July, ‘92: 119.0

June, ‘92: 123.2

July, ‘91: 127.2

Source: Commerce Department