Factory Orders Fall on Drop in Demand for Transportation

factory orders fall due to drop in transportation
Elaine Thompson/AP
By Lucia Mutikani

WASHINGTON -- New orders for U.S. factory goods fell in December, but rose for a third straight month when the volatile transportation sector was excluded, which could ease concerns of an abrupt slowdown in manufacturing activity.

The Commerce Department said Tuesday new orders for manufactured goods dropped 1.5 percent, the largest fall since July, weighed down by a plunge in bookings for transportation equipment.

November's orders were revised to show a 1.5 percent increase instead of the 1.8 percent gain previously reported.

Economists polled by Reuters had forecast new orders received by factories falling 1.7 percent in December.

New orders for transportation equipment tumbled 9.7 percent, the largest drop since July, after increasing 8.1 percent in November. Orders for motor vehicles fell by the most in five months. Non-defense aircraft and parts orders fell 17.5 percent.

Orders excluding transportation gained 0.2 percent after rising 0.3 percent in November. There were gains in orders for machinery, electrical equipment, appliances and components. %VIRTUAL-article-sponsoredlinks%Orders for primary metals fell and bookings for computers and electronic products posted their biggest drop since June 2012.

Factory activity is expected to slow down early this year after output grew at its fastest pace in nearly two years in the fourth quarter. That will also hold back economic growth after brisk expansion in the second half of the year.

The Institute for Supply Management reported Monday that its index of national factory activity dived to an 8-month low in January, with orders recording their largest drop in more than 30 years.

But manufacturing isn't slowing as sharply as suggested by the ISM survey, with bad weather accounting for some of the slowdown. There also has been a steady rise in order backlogs.

Unfilled orders at the nation's factories rose 0.4 percent in December to their highest level since the series started in 1992 and were up 0.9 percent in November.

Economic activity has cooled off a bit in part due to unseasonably cold weather across much of the country and payback after the second half's robust 3.7 percent annual growth pace, which was driven by inventories, consumer spending and trade.

The Commerce Department said orders for durable goods, manufactured products expected to last three years or more, dropped 4.2 percent instead of the 4.3 percent fall reported last month. Durable goods orders excluding transportation fell 1.3 percent and not 1.6 percent as previously reported.

Orders for non-defense capital goods excluding aircraft -- seen as a measure of business confidence and spending plans -- declined 0.6 percent instead of the previously reported 1.3 percent drop.

9 Numbers That'll Tell You How the Economy's Really Doing
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Factory Orders Fall on Drop in Demand for Transportation
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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