New factory orders for durable goods such as automobiles and machinery fell a sharp 5.2 percent in July, indicating that the economy is on a recession track, the Commerce Department reported yesterday.
And for the first time since last January, after adjustment for inflation, shipments exceeded new orders, so that the real backlog of unfilled orders at the nation's factories dropped.
Orders for non-defense capital goods -- machines and other items business buys in order to produce other goods -- fell 10.1 percent last month, primarily because of declines in the aircraft and electrical machinery industries.
Since that key part of total orders peaked at a seasonally adjusted level of $24.0 billion in March, it has fallen to $19.6 billion over only four months.
Overall, since March, new orders have fallen from $83.1 billion to $71.9 billion. Given the high rate of inflation over that time, the drop in real terms in even greater.
Economist Alan Greenspan of Towsend-Greenspan & Co., the New York consulting firm, said the decline in new orders was in line with his expectation of a "very gradual erosion" of the economy. If there had been no decline, "then all of the talk about a recession would have been just talk," he said.
From June to July, new orders dropped from $2.9 billion of the decline coming in transportation equipment Aircraft orders dropped back after a surge in June, but automobile and truck orders continued in a solid decline, falling by $1.0 billion last month.
Outside of autos and what he called "lumpy items" in aircraft and ship-building orders, one administration economist said the numbers show "a widespread but moderate weakness" in most industries. Such a decline, he added, is consistent with the administration's forecast of a slowdown in economic activity.
At a time when the ratio of inventories to sales is rising moderately, you would expect just such a decline in new orders," he explained.
One reason that some economists, including many in the administration, have been expecting at worst a very mild recession is the belief that business investment spending will continue fairly strong. Further sharp drops in new orders for non-defense capital goods, should they occur, could simply that those investment plans are changing, for the worse. See ECONOMY,B2,Col.2