Factory Orders for Durable Goods Plunge an Unexpected 12.4% in July

Orders to U.S. factories for costly manufactured goods in July took their biggest-ever-recorded dive as demand fell sharply for airplanes and electronic equipment, more evidence that the economy is finally slowing.

The Commerce Department said Thursday that the larger-than-expected 12.4% decline left orders for durable goods--items expected to last at least three years--at a seasonally adjusted annual rate of $212.4 billion.

In a second report, the number of Americans filing new claims for unemployment benefits rose last week for the fourth week in a row, by 4,000 to 314,000. That suggests the tight labor market is “loosening around the edges,” said Merrill Lynch economist Stan Shipley.

Excluding the volatile transportation sector, durable-goods orders in July fell 4.8%, the second decrease this year.

“The bottom line for America’s manufacturers is that the economy is slowing to a more sustainable pace, with strong noninflationary growth continuing but at a less accelerated rate,” said National Assn. of Manufacturers economist Dave Huether.

Over the last 14 months, the Federal Reserve has boosted short-term interest rates six times in an effort to cool the economy and keep inflation from escalating.

Fed policymakers meeting this week cited evidence of a slowing economy in deciding to leave interest rates unchanged for now.

The durable-goods report “shows the economy is just moving at a slower pace than it had, but that doesn’t mean it’s crawled to a stop. The economy continues to forge ahead,” said Richard Yamarone, economist with Argus Research Corp.

July’s performance largely reflected a record 31.7% decline in orders for transportation equipment, mostly due to lower demand for airplanes and aircraft parts, the government said.

The transportation sector can swing widely from month to month because it includes costly items such as airplanes. For instance, in June, orders for transportation equipment surged 41.7%, helping boost total orders for big-ticket manufactured goods by 9.5%.

Meanwhile, orders for electronics and electrical equipment, including semiconductors, circuit boards and home appliances, declined by 16.8%.

Primary metals, the category that includes steel, had a 1.4% reduction in orders last month.

There was a bright spot in the report for the nation’s manufacturers, however. Orders for industrial machinery, including computers and machine tools, rose 4.3% in July.

Shipments of big-ticket items, a good sign of current demand, fell 1.9% in July.

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Durable Goods

New orders, in billions of dollars, seasonally adjusted:

July: $212.4 billion

Source: Commerce Department