Orders for U.S. factory goods dropped 2.5 percent in October, the third consecutive monthly decline and the sharpest fall since April, the Commerce Department reported yesterday.
The factory orders report confirmed other recent government statistics pointing toward a sharp slowdown in economic activity. Factory orders are considered a good barometer of future factory production.
The October decrease followed declines of 1.4 percent in September and 0.8 percent in August.
Additionally, manufacturers' inventories rose $1.2 billion, or 0.4 percent, in October following a 0.7 percent rise in September. Economists blamed the rise in inventories on the slowdown in consumer spending. Generally, if inventories rise too quickly, businesses cut back production to deplete excess stock.
In a separate report, the Commerce Department said sales of new single-family homes climbed 2.1 percent in October, largely because of large gains in the West. Sales were down in every other section of the country.
New-home sales were at a seasonally adjusted annual rate of 680,000 last month, the best showing since March, Commerce said.
If new orders for factory goods continue to decline, "It wouldn't auger too well for production in the coming months," said Robert Ortner, the Commerce Department's chief economist. Nondefense capital goods also declined in October. "That has adverse implications for capital spending if it doesn't turn around quickly," he said.
The economic slowdown has been blamed in part on the tight money policies of the Federal Reserve earlier this year, which are just taking effect now, and a slowdown in consumer spending.
"Because businesses did not anticipate this drop in [consumer] demand, there was some involuntary buildup in inventories during the last few months, and falling orders reflect a current effort by businesses to sell off these surplus stocks," said Jerry Jasinowski, chief economist for the National Association of Manufacturers.
"Production and orders are not likely to pick up much until the consumer starts spending again, hopefully during the Christmas shopping season," Jasinowski said.
Economist Steven Wood of Chase Econometrics said that new orders should improve in the November statistics, because a major reason for the October decline was the poor performance in the transportation equipment sector. That group was hurt by the Canadian automobile strike, which curbed automobile production in the United States.
In addition, defense orders fell in October. That volatile category could show improvement in the November figures, Wood said.
"I don't see real strong orders numbers for several months, because there's no particular strength in the economy right now," Wood said. "What strength there is is being diverted to foreign goods. With the economy beginning to weaken up and be a bit softer, we're just not going to see the robust growth in new orders that we saw in late 1983 and early 1984."
In the next few months, new orders probably will grow at a rate of about 2 to 4 percent a month, Wood said. "It's not outstanding, but it's not terrible, either," he said.
New orders for durable goods declined $3.5 billion to $95.2 billion, Commerce said, with declines widespread.
New orders for electrical machinery declined 14.6 percent, largely because of declines in communications equipment and electronic components, Commerce said. New orders for nonelectrical machinery decreased 7.0 percent, the fourth decline in the last five months, Commerce said. New orders for these goods now have declined below levels reached a year ago.