Orders for durable goods fall in October, hinting at economic headwinds

Orders to U.S. factories for big-ticket manufactured goods fell in October by the largest amount in 15 months, led by a huge decline in the volatile areas of commercial and military aircraft.

The Commerce Department said Wednesday that orders for durable goods dropped 4.4%. The slowdown has raised the idea that a widening trade war between the United States and China is causing U.S. companies to grow more cautious about committing resources to expand and modernize their operations.

Ben Herzon, executive director of US Economics Macroeconomic Advisers, said the number of risks to manufacturing was growing amid a stronger dollar, which makes American goods less competitive on global markets, and worries about the U.S.-China trade battle.

“While the manufacturing sector is currently in good shape, headwinds are mounting,” Herzon said.

The overall economy, as measured by the gross domestic product, grew at a strong 3.5% annual rate in the July-September quarter but this gain came despite the fact that business investment spending slowed sharply in the third quarter, to an annual rate of just 0.8%, the weakest showing in nearly two years, after an 8.7% surge in the second quarter.

In addition to the possible adverse effects from the U.S.-China trade war, economists said the investment slowdown could be an indication that the boost to investment spending stemming from the tax cut President Trump pushed through Congress last year is beginning to wane.

The report on durable goods, items expected to last at least three years, showed that October’s drop was the biggest setback since a 7.4% fall in July 2017.

Excluding the volatile transportation sector, orders would have posted a tiny 0.1% gain after a 0.6% drop in September.

In transportation, orders were down 12.2% with demand for autos and auto parts edging up a small 0.2% while orders for commercial aircraft fell 21.4% and orders for military aircraft dropped an even bigger 59.3%.

Orders for primary metals such as steel dropped 2.3% while demand for computers and related products rose 1%.

In a separate report, the Labor Department said new applications for unemployment benefits rose for a second week, up by 3,000 to a still-low 224,000.

Benefit applications, which are a proxy for layoffs, have been at ultra-low levels for an extended period, reflecting the fact that the nation’s unemployment rate has fallen to the lowest level in nearly five decades.