WASHINGTON – Orders to U.S. companies for long-lasting manufactured goods fell for a second month in September, while a key category that signals business investment plans dropped by the biggest amount in eight months.
But analysts view the declines as a temporary soft patch that will likely be followed by a return to solid growth, powered by an expected upturn in business spending on new equipment.
Orders for durable goods retreated 1.3 per cent in September after a record 18.3 per cent tumble in August, the Commerce Department reported Tuesday. The August drop followed a record 22.5 per cent increase in July. The wide swings in both months were driven by the volatile aircraft category, which saw orders soar in July only to plunge in August.
A category that serves as a proxy for business investment fell 1.7 per cent in September, the biggest drop since January. Economists noted that the decline came after a period of solid gains that had pushed the category to record levels. Manufacturing has been a cornerstone of strength for the economy this year, and the recent weakness is not expected derail the longer-term momentum.
Economists remain optimistic about the outlook for manufacturing. They believe businesses will continue to expand and modernize their operations as consumer spending benefits from a strengthening job market.
Consumer spending, which accounts for 70 per cent of economic activity, should offset lacklustre growth of U.S. exports. Despite reaching record highs earlier this year, overseas demand may slow in the coming months because of weakness in key markets such as Europe, as well as a strengthening U.S. dollar, which makes American goods less competitive abroad.
Gregory Daco, lead U.S. economist for Oxford Economics, said he still forecasts that the U.S. economy “should be able to weather a minor global slowdown.”
For September, the weakness permeated a number of areas. Demand for transportation goods fell 3.7 per cent, with orders for commercial aircraft falling 16.1 per cent. Demand for motor vehicles and parts slipped 0.1 per cent. Orders for machinery fell 2.8 per cent, and demand for computers declined 5.3 per cent.
Demand for primary metals such as steel rose 2.2 per cent, while orders for appliances rose 1.8 per cent.
On Thursday the government will release its first estimate for overall economic growth for the third quarter as measured by the gross domestic product. Even after the disappointing durable goods report, analysts said they still believe the economy grew at a solid 3 per cent annual rate in the July-September period. Many believe growth will continue at a healthy clip in the final three months of this year.
The first half of the year was much more of a roller coaster. The economy contracted at an annual rate of 2.1 per cent in the first quarter, reflecting the impact of a harsh winter and other adverse factors, and then bounced back to growth of 4.6 per cent in April-June period.
The Institute for Supply Management reported that its closely watched barometer of manufacturing performance fell to 56.6 in September from 59 in August.
Analysts said that the slowdown was consistent with a recent drop-off in global demand. While most economists believe that strong domestic demand can offset any weakness from exports, others urged more caution.
“Moderate growth remains the likely path for U.S. manufacturing, but the downside risks for short-term factory sector performance are growing,” said Cliff Waldman, director of economic studies for the research affiliate of the Manufacturers Alliance for Productivity and Innovation.