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Factory Orders in U.S. Unexpectedly Dropped in April

Employee Louie Cruz loads prop shafts onto a carrier before final inspection at the Mennie Machine Co. in Mark, Illinois, U.S., on Friday, June 1, 2012. Orders to U.S. factories unexpectedly fell in April. Photographer: Daniel Acker/Bloomberg

Orders to U.S. factories unexpectedly fell in April for a second month, pointing to a deceleration in manufacturing as the global economy cools.

Bookings dropped 0.6 percent after a revised 2.1 percent decrease in March, the first back-to-back declines in more than three years, figures from the Commerce Department showed today in Washington. Economists projected a 0.2 percent gain, according to the median forecast in a Bloomberg News survey.

Slowdowns in Europe and parts of Asia combined with a cooling in business spending in the U.S. following a reduction in a government tax credit may limit manufacturing this year. A falloff in hiring may also be causing American households to curb spending on big-ticket items like autos, eliminating another source of strength.

“We’re in a period now where the economy is cooling,” said Robert Dye , chief economist at Comerica Inc. in Dallas, who projected orders would drop. “Businesses are getting more defensive as they think about the uncertainty they face the rest of this year.”

Stocks dropped, sending the Standard & Poor’s 500 Index down more than 10 percent from this year’s high. The 500 Index fell 0.3 percent to 1,274.74 at 3:43 p.m. in New York.

Estimates for total factory orders in the Bloomberg survey of 61 economists ranged from a decline of 1 percent to an increase of 1.1 percent. The Commerce Department revised the March figure from a previously estimated 1.9 percent decrease.

Consecutive Declines

The last time bookings decreased in consecutive months was in February and March 2009.

Excluding transportation equipment, factory orders fell 1.1 percent in April after a 0.7 percent decrease the prior month.

Bookings for durable goods, those meant to least at least three years, were unchanged in April, less than the 0.2 percent gain the government reported on May 24. Demand for non-durable goods, including petroleum, dropped 1.1 percent.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, decreased 2.1 percent after falling 2.3 percent in March, bigger declines than the government reported last month.

Shipments of such equipment, which are used in calculating gross domestic product, dropped 1.5 percent after a 1.8 percent gain the prior month.

Business investment has cooled in recent months, offering less of a lift to the expansion. The U.S. economy grew at a 1.9 percent annual rate in the first quarter after advancing at a 3 percent pace in the last three months of 2011. Spending on equipment and software added 0.3 point to growth, smaller than any contribution last year.

Tax Credit

The expiration at the end of 2011 of a tax incentive allowing 100 percent depreciation on equipment purchases may have prompted a slowdown in investments this year. The allowance for 2012 is 50 percent.

Foreign demand will also probably weaken as economies elsewhere lose momentum. Growth in the 17-nation euro region stagnated in the first quarter from the same time in 2011. China’s economy expanded 8.1 percent in the first three months of 2012 from a year earlier, the slowest pace in 11 quarters.

Motor vehicles and parts orders decreased 0.5 percent in April after a 2 percent gain, today’s report showed.

Sales of cars and light trucks slowed to a 13.7 million annual rate in May, the weakest so far this year, industry data from Ward’s Automotive Group showed last week. Purchases in the first four months of 2012 ran at the fastest pace in four years.

Hiring Slows

The labor market stumbled in May as employers added the fewest workers in a year and the unemployment rate rose, figures from the Labor Department showed last week.

Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg survey, after a revised 77,000 gain in April that was smaller than initially estimated. The jobless rate rose to 8.2 percent from 8.1 percent.

Factory inventories were little changed in April, and manufacturers had enough goods on hand to last 1.28 months at the current sales pace, the same as in March.

Other reports indicate manufacturing is still plugging ahead, albeit more slowly than last year. The Institute for Supply Management’s factory index cooled to 53.5 in May from 54.8 in April, the Tempe, Arizona-based group said last week. Readings above 50 signal growth. In April, the barometer hit a 10-month high.

A Federal Reserve measure showed manufacturing output, which makes up about 75 percent of industrial production, rebounded in April.

“The U.S. industrial economy remains pointed in a very positive direction,” Timothy Tevens, president and chief executive officer of Columbus McKinnon Corp. said in a May 24 earnings call. The Amherst, New York-based maker of hoists, cranes and rigging tools is seeing “huge projects” from Deere & Co., a benefit from oil and gas extraction and basic manufacturing that’s doing well, he said.

Download: ISM's Holcomb Teleconference on May Manufacturing

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