Government reports steep decrease in factory orders last month

Tuesday, August 30th 2005, 9:53 am
By: News On 6

WASHINGTON (AP) _ Orders to U.S. factories fell in July by the largest amount in 15 months, reflecting a big cutback in demand for commercial aircraft, the government reported Tuesday.

The Commerce Department said that demand for manufactured products dipped 1.9 percent last month as orders in the transportation sector fell a sharp 8.8 percent. It was the biggest decline in this category in 19 months.

Analysts are concerned that manufacturing, which was the hardest hit sector in the last recession, could falter again if business and consumer confidence wavers in the face of soaring energy prices.

Separately, the Conference Board in New York reported that consumer confidence actually rose in August to 105.6, up from a July reading of 103.6.

The report on manufacturers' orders showed that overall orders dipped to a seasonally adjusted $387.8 billion in July, compared to $395.3 billion in June.

The biggest drop was an 8.8 percent fall in orders for transportation goods, which declined to $61.9 billion, down from $67.8 billion in July. The decline was led by a 20.1 percent fall in demand for commercial aircraft and parts, the second consecutive monthly decline in this category, and a 5.6 percent drop in demand for military aircraft and parts.

Orders for durable goods, items expected to last at least three years, were down 4.9 percent in July, unchanged from a preliminary reading last week. Orders for nondurable goods _ products such as food, clothing and gasoline _ actually rose by 1.7 percent in July after a 0.2 percent decline in June.

Factory shipments, considered a good indication of current demand, rose by 0.7 percent in July to an all-time high of $389.3 billion. A small 0.1 percent dip in shipments of durable goods was offset by a 1.7 percent rise in shipments of nondurable goods, a gain that was led by a 6.4 percent surge in shipments from petroleum refineries, reflecting record prices for gasoline and other energy products.

Many analysts believe the overall economy is growing at a supercharged rate of more than 4 percent in the current quarter, even in the face of the higher energy prices.

However, there is concern that if prices continue rising, it could begin to cause consumers to stop spending on other products, a retrenchment that could quickly dampen overall economic growth since consumer spending accounts for two-thirds of the economy.

The Federal Reserve has continued to boost interest rates at a gradual pace this year with Fed officials contending that the big spike in energy prices has not led to a worrisome increase in inflation pressures outside of energy.