Factory Orders in U.S. Drop 0.8%; Ex-Transport Rises 0.4%

Oct. 2 (Bloomberg) -- Orders placed with U.S. factories fell unexpectedly in August, restrained by long-lasting items such as commercial aircraft, construction machinery and electrical equipment.

Bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders rose 0.4 percent.

Today’s report follows others this week that showed manufacturing contracted or slowed in September. With excess capacity close to a record, companies have less reason to ramp up production until they see stronger gains in demand. While the “cash for clunkers” program boosted automakers’ output in August, it’s now expired, pointing to an uneven rebound.

“We could have a choppy recovery,” Benjamin Reitzes, an economist at BMO Capital Markets in Toronto, said before the report. “Employment is still falling, and until that turns around the economy is going to have trouble gaining any momentum.”

Factory orders were forecast to be unchanged, after an originally estimated 1.3 percent gain in June, according to the median of 65 estimates in a Bloomberg News survey. Projections ranged from a decrease of 1.7 percent to an increase of 2.1 percent.

Employers cut more jobs than forecast last month and the unemployment rate rose to a 26-year high, Labor Department data showed today, calling into question the sustainability of the economic recovery.

Durable Goods

The unemployment rate rose to 9.8 percent, the highest since 1983, from 9.7 percent in August. Payrolls fell by 263,000, following a revised 201,000 decline the prior month that was less than previously reported.

Orders for durable goods, which make up 47 percent of total factory demand, fell 2.6 percent, the biggest drop since January. The government last week estimated they had dropped 2.4 percent.

Demand for transportation equipment, which tends to be volatile, fell 9.1 percent, led by a 43 percent decline in commercial aircraft and parts. Autos increased 2 percent.

Ford Motor Co, General Motors Co. and Honda Motor Co. are among automakers that cited the popularity of the cash-for- clunkers plan as they announced production increases for the coming months.

Clunkers Program

The program, which ended Aug. 24, offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan produced almost 700,000 auto sales before it ended, the Transportation Department said Aug. 26.

Auto sales fell 35 percent in September from the previous month to a 9.2 million annual rate, after the clunkers plan expired, according to Bloomberg data. Sales had reached the highest level in more than year a month earlier.

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 0.9 percent after dropping 1.3 percent in July. Shipments of those goods, used in calculating gross domestic product, decreased 2 percent.

Economists earlier this week said the end of the clunkers incentive may have helped fuel a weaker-than-forecast September reading for the Institute for Supply Management- Chicago’s business survey, which found activity dropped. The Chicago group is not affiliated with the national Institute for Supply Management.

Factory Stockpiles

The Institute for Supply Management yesterday said its factory gauge edged down to 52.6, from 52.9 in August. Readings above 50 signal expansion.

Another Commerce Department report this week showed the record drop in stockpiles in the second quarter was even larger than previously estimated, paving the way for gains in manufacturing in the second half of the year.

Today’s report showed factory stockpiles fell 0.8 percent in August, the smallest drop since May, after falling a revised 0.9 percent a month earlier. Manufacturers had enough goods on hand to last 1.38 months -- the lowest since October -- at the current sales pace, down from 1.39 months in July.

Micron Technology Inc., the biggest U.S. producer of computer-memory chips, this week reported a narrower loss after an industry glut eased and product prices rebounded.

Bankruptcies and factory shutdowns have helped the memory industry pare an oversupply of chips, pushing up prices closer to the cost of production. Micron makes dynamic random access memory, or DRAM, for personal computers, as well as Nand flash chips, which store data in devices such as Apple Inc.’s iPhone.

Job Cuts

Timothy Main, chief executive officer of Jabil Circuit Inc., the Florida electronics manufacturer, said this week that the worst of the recession had likely passed. Even so, the company stepped up a job-cutting program. Jabil now expects to eliminate 4,500 positions, up from the 3,000 already planned.

Today’s factory report showed orders of non-durable goods gained 0.8 percent. The increase may have been influenced by an 8 percent gain in wholesale energy costs in August, according to Labor Department figures released Sept. 15.