U.S. Factory Orders Plunge Unexpectedly in August

The Commerce Department says demand for manufactured goods dropped 0.8 percent, much worse than the 0.7 percent gain that economists had expected. The August decline reflected plunging demand for commercial aircraft, a category that surged in July.

New orders to U.S. factories fell in August by the largest amount in five months, as American manufacturers struggle to emerge from the recession.

The Commerce Department said Friday that demand for manufactured goods dropped 0.8 percent, much worse than the 0.7 percent gain that economists had expected. The August decline reflected plunging demand for commercial aircraft, a category that surged in July.

Economists worry that factories will remain under pressure because of weak consumer spending as American households deal with continued layoffs and rising unemployment.

In a separate report, the Labor Department said unemployment rose to a 26-year high of 9.8 percent in September as employers cut a net total of 263,000 jobs, far more than had been expected.

While many economists believe that the U.S. has emerged from the worst recession since the 1930s, they worry the rebound could falter once the impact of government stimulus efforts, such as the Cash for Clunkers auto rebate program, wanes.

The overall economy likely grew at an annual rate of 3 percent or better in the July-September quarter, but that growth could slip significantly if consumers worried about further job layoffs don't keep spending. Weak spending would translate into more order cutbacks and prevent the manufacturing sector from mounting a recovery.

For August, the 0.8 percent drop in new orders followed four consecutive gains, including a 1.4 percent jump in July. A 42.6 percent plunge in demand for commercial aircraft, a category that had soared 98.1 percent in July, led the overall decline in August.

Transportation orders overall fell 9.1 percent, after a 17.8 percent July increase. Orders for motor vehicles and parts did rise 2 percent, but economists expect demand to slip in coming months as car sales plunged in September following the end of the clunkers program.

Excluding transportation, orders would have risen 0.4 percent, after falling 0.6 percent in July.

Demand for durable goods such as autos and other products expected to last at least three years fell 2.6 percent in August, even worse than the 2.4 percent preliminary estimate the government made last week.

Demand for nondurable goods, items such as chemicals, paper and food, rose 0.8 percent after a 1.5 percent drop in July.

In another disappointing manufacturing report, the Institute for Supply Management said Thursday that its closely watched gauge of factory activity dipped slightly to a reading of 52.6 in September. While the index remained in expansion territory for the second straight month after 18 straight recessionary readings, the new tally was lower than analysts had expected and below the August mark of 52.9.

The drop in factory orders and the weaker-than-expected ISM report underscored the tentative nature of the recovery as companies work to boost sales and consumers confront rising unemployment, tight credit conditions and heavy household debt.

While consumer spending posted a better-than-expected 1.3 percent jump in August, the biggest increase in nearly eight years, much of the strength came from a temporary surge in demand for new cars spurred by the clunkers program.

U.S. auto sales fell sharply in September, reflecting the end of the popular government incentives in the prior month. General Motors Co. reported that its sales plunged 45 percent last month from the previous year, while Chrysler Group LLC reported a 42 percent decline. Ford Motor Co. had a smaller decline of 5.1 percent.