Orders to U.S. Factories Decline More Than Forecast (Update2)
Orders to U.S. Factories Decline More Than Forecast
Jim R. Bounds/Bloomberg
A worker assembles components for an automated teller machine (ATM) at the Diebold Inc. manufacturing plant in Greensboro, North Carolina.
A worker assembles components for an automated teller machine (ATM) at the Diebold Inc. manufacturing plant in Greensboro, North Carolina. Photographer: Jim R. Bounds/Bloomberg
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Orders placed with U.S. factories declined more than forecast in June, a sign manufacturing will cool in coming months.
The 1.2 percent decrease in bookings was more than double the 0.5 percent drop projected by the median forecast of economists in a Bloomberg News survey and followed a revised 1.8 percent decline in May, figures from the Commerce Department showed today in Washington.
Manufacturing, which has led the economy’s recovery from the worst recession since the 1930s, will settle into a more sustainable pace as inventory replenishment wanes. DuPont Co. is among companies that are benefiting from rising sales this year even as they project a slower second half.
“A downshift in the manufacturing boom is under way, driven primarily by the maturing inventory cycle,” said Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “This shouldn’t be taken as a signal of widespread weakening. Businesses still have expansion in their sights and will provide the fuel for growth.”
Estimates of total orders in the Bloomberg survey ranged from a decline of 1.2 percent to a gain of 0.8 percent, following an initial drop of 1.4 percent in May.
A separate report from the National Association of Realtors showed a 2.6 percent decrease in the June number of contracts to buy previously owned homes. Economists projected a 4 percent gain after a record 30 percent slump in May, according to the median forecast in a Bloomberg survey.
Spending and Income
Commerce Department figures also showed consumer spending and incomes unexpectedly stagnated in June. The little changed reading in purchases followed a 0.1 percent gain the prior month that was smaller than previously estimated. Incomes didn’t increase for the first time since September.
Stocks held losses after the reports, with the Standard & Poor’s 500 Index retreating from a 10-week high. The S&P 500 dropped 0.3 percent to 1,122.51 at 10:51 a.m. in New York. The 10-year Treasury note rose, pushing down the yield to 2.9 percent from 2.96 late yesterday.
Manufacturing, which accounts for about 11 percent of the economy, expanded in July at the slowest pace this year, the Institute for Supply Management reported yesterday. The Tempe, Arizona-based group’s factory gauge fell to 55.5 from 56.2 in June. Readings greater than 50 indicate expansion. The new orders measure fell to the lowest level since June 2009.
Durable Goods
Demand for durable goods, which make up just over half of total factory demand, fell 1.2 percent. The government reported on July 28 that bookings for these goods decreased 1 percent in June, depressed by a decrease in demand for aircraft which is often volatile. Durable-goods shipments fell 0.3 percent.
Bookings of non-durable goods, including food, petroleum and chemicals, decreased 1.3 percent, led by decreasing demand for petroleum products.
Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, climbed 0.2 percent, less than projected last week, after a 4.7 percent gain in May. Shipments of these goods, used in calculating gross domestic product, rose 0.5 percent, more than previously estimated, after increasing 1.6 percent.
Factory inventories dropped 0.1 percent in June. Manufacturers had enough goods on hand to last 1.26 months at the current sales pace, the same as in May.
DuPont Sales
DuPont, the third-biggest U.S. chemical maker, on July 27 forecast second-half sales will rise on better-than-expected automobile production and continued demand for materials used in electronics and paint. The Wilmington, Delaware-based company’s sales will jump more than 15 percent this year compared with a previous forecast of 10 percent and a second-quarter gain of 26 percent, officials said.
“We expect the recovery that we’ve seen in our business to continue, but in a more moderate pace than we’ve experienced in the first half,” Chief Financial Officer Nicholas Fanandakis said on a conference call with analysts.
While the scarcity of jobs is restraining U.S. household spending, higher demand in developing countries is allowing companies like Caterpillar Inc., the world’s largest maker of construction equipment, to raise their annual profit forecast.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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