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New Orders!

Sarah Fentem/MEDILL


Manufacturing new orders dropped 5.2 percent.

Manufacturing orders fall

by Sarah Fentem
Oct 04, 2012

Orders for manufactured goods decreased 5.2 percent in August compared with July, the government reported Thursday. Shipments and unfilled orders decreased 0.3 percent and 1.7 percent respectively.

Economists surveyed by Bloomberg had been expecting factory orders to decrease even more—by 5.9 percent. Even so, one local economist called the decrease frustrating.

“It’s a little disappointing, because orders have fallen quite a bit,” said Bill Testa, director of regional research at the Federal Reserve Bank of Chicago. “One was hoping we would see a little bit of a rebound on the orders side.”

The decrease in orders could be attributed to trepidation about a possible “fiscal cliff”, a crisis that would result from a combination of federal tax increases and spending cuts set to kick in at the end of the year. Economists are worried the combination could launch the country into another recession.

“We’re hearing from our business contacts an amount of uncertainty,” Testa said. “You’re not about to buy a new piece of equipment if you’re not going to use it.”

Excluding the transportation sector, new orders increased 0.7 percent. While new orders for motor vehicles and related parts were down 14.9 percent, orders for commercial aircraft and parts fared much worse.

Testa explained because large items like airplanes and ships  cost huge amounts, even a small change in orders can cause wide swings in statistics. All it takes is for Boeing to cancel the manufacture of one aircraft to have a huge affect on manufacturing numbers.

In addition, inventories increased 0.6 percent to $3.7 billion, the highest level since the series was first published on North American Industry Classification System basis in 1992.

On the bright side, new orders for construction machinery and computers increased, indicating growth in homebuilding and technology sectors.