Approach of War Takes Toll on Factory Orders
U.S. factory orders dropped 1.5% in February, the most in five months, adding to evidence the approach of the war in Iraq took a toll on manufacturing and the economy.
The decrease, reflecting less demand for commercial aircraft, computers and chemicals, followed a 1.7% gain in January, the Commerce Department said Wednesday.
Excluding transportation, orders fell 2%, the largest drop in a year. Bookings for defense goods surged 27.1%, the third rise in four months.
The drop in orders caused manufacturing to contract last month for the first time since October.
Companies are trimming orders and factories are reducing production because consumer purchases, which account for two-thirds of the economy, stalled in January and February.
“There was a wait-and-see mentality among businesses” as the war approached, said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
Companies probably cut jobs for a second month in March, statistics may show Friday, because “businesses were still very nervous.”
Factory inventories expanded 0.4% in February after a 0.1% gain in January.
With shipments falling, the inventory-to-shipments ratio, a gauge of how long goods sit in warehouses, rose to 1.34 months from 1.32 months in January.
The decrease in orders was led by a 1.6% drop in bookings for durable goods made to last at least three years, which account for more than half of the report.
Defense capital goods were 23.3% higher in February than in the same month last year.
Industrial machinery orders plummeted 29% to $2.8 billion. Bookings for computers dropped 17% to $3.9 billion.
Orders for non-defense capital goods, excluding aircraft, a proxy for business investment in equipment and software, decreased 3.7% after increasing 5.2% the previous month. Shipments of capital goods, which are used in calculating gross domestic product, declined 3.1% after gaining 3.1%.
Orders for nondurable goods, which include chemicals, fell 1.4% after rising 1.3%.
