Orders to U.S. Factories Unexpectedly Declined 0.5% in June

Orders placed with U.S. factories unexpectedly declined in June, reflecting less demand for business equipment and the biggest decrease in bookings for non- durable goods in more than three years.

The 0.5 percent drop in bookings followed a revised 0.5 percent increase in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a 0.5 percent gain. June orders for durable goods climbed 1.3 percent, revised from the 1.6 percent surge reported last week. Demand for non-durable items, reported today for the first time, slumped 2 percent, the biggest drop since March 2009.

Orders may have waned last month as well, according to a purchasing managers’ report yesterday that showed manufacturing unexpectedly contracted in July. The industry, facing the headwinds of Europe’s debt crisis, a weakening global economy and a slowdown in corporate investment, is providing less of a boost to the economy.

“The industrial heartland had been doing all the heavy lifting when it came to driving the economy,” Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, said in an e-mail before the report. “Right now, the sector looks a bit tired.”

Estimates in the Bloomberg survey of 54 economists ranged from a decline of 0.9 percent to an increase of 1.9 percent. The Commerce Department revised the May figure from a previously reported increase of 0.7 percent.

Stocks held earlier losses after the European Central Bank kept rates on hold and President Mario Draghi failed to reassure investors he was ready to take immediate steps to support the economy. The Standard & Poor’s 500 Index fell 0.6 percent to 1,366.54 at 10:05 a.m. in New York.

Broad-Based Drop

The decrease in non-durable goods orders followed a 0.4 percent drop in May and reflected broad-based declines in sales of everything from petroleum products to chemicals to food.

Factory orders excluding the volatile transportation category, decreased 1.8 percent in June, the biggest drop since March 2009, after no change the month before.

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 1.7 percent in June. Shipments of those goods, which are used in calculating gross domestic product, climbed 1 percent for a second month.

An unemployment rate that’s exceeded 8 percent for 41 straight months is restraining household spending, which accounts for about 70 percent of the economy.

Auto Sales

At the same time, automakers have been a source of strength. Toyota Motor Corp. and Honda Motor Co. are on pace for record production in North America this year, and Chrysler Group LLC is boosting output to meet demand with the industry on track for its best annual sales total since 2007.

Cars and light trucks sold at a 14.1 million annual rate in July, unchanged from the prior month, industry figures showed yesterday. It also matched the average for the second quarter, indicating little momentum as the industry heads for the best year since 2007, before the last recession.

“We think some truck buyers have been reacting to the mixed economic signals of the last few months,” Chrysler spokesman Jim Cain said on a conference call yesterday. “But recent reports of consumer confidence, home prices, and personal income were better than expected. We expect all of these factors will help release more pent-up demand.”

Factory inventories increased 0.1 percent in June, today’s report showed, while shipments slumped 1.1 percent, bringing the inventory-to-shipments ratio to 1.29 months, the highest since November, from 1.27 months.

Less Support

Manufacturing accounts for about 12 percent of the economy and has been at the forefront of the recovery that began June 2009. Cooling business investment means it may offer less support to the expansion in the second quarter.

The Institute for Supply Management’s July factory index, held near a three-year low of 49.7 reached in June, the Tempe, Arizona-based group said yesterday. A reading below 50 indicates a slowdown. Other reports suggested a global retrenching, with U.K. manufacturing shrinking the most in more than three years and euro-area factories reducing output.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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