US factory orders slide as shipments post largest drop in two years
Commerce department says factory goods orders fell 0.8%, pulled down by lower demand for transport equipment, computers and electronic orders, and primary metals
Washington — New orders for US-made goods fell in April and shipments dropped by the most in two years, indicating continued weakness in manufacturing activity that could undercut the broader economy.
Factory goods orders declined 0.8%, pulled down by soft demand for transportation equipment, computers and electronic orders, and primary metals, the commerce department said on Tuesday. Data for March was revised down to show factory orders increasing 1.3% instead of surging 1.9% as previously reported.
Economists polled by Reuters had forecast factory orders falling -0.9% in April. Factory orders rose 1.6% compared with April 2018. Manufacturing, which accounts for about 12% of the economy, is being squeezed by businesses placing fewer orders while working off stockpiles of unsold goods in warehouses.
The inventory bloat is concentrated in the automotive sector, which is experiencing weaker sales. Inventories at factories rose 0.3%. The stock of unsold goods has increased in seven of the past eight months.
Largest drop since 2017
Shipments of manufactured goods fell 0.5% in April, the largest drop since April 2017, after rising 0.2% in March. Boeing’s move to cut production of its troubled 737 MAX aircraft is also hurting manufacturing.
The sector could see more disruptions to the supply chain after President Donald Trump announced last week that he would impose a tariff on all goods from Mexico in a bid to stem the tide of illegal immigration across the US-Mexican border, starting at 5% on June 10.
The US is already waging a trade war with China.
The weak factory orders data was flagged by a report in May showing a drop in demand for long-lasting manufactured goods in April, as well as a drop in manufacturing production.
A survey on Monday showed a measure of national factory activity dropped to a 31-month low in May, with manufacturers expressing concern over the US-China trade tensions.
The data joined moderate consumer spending as well as weak home sales and construction outlays in April in suggesting that economic growth was slowing sharply after a temporary boost from trade inventories and defence spending in the first quarter.
The Atlanta Federal Reserve is forecasting GDP rising at a 1.3% annualised rate in the second quarter. The economy grew at 3.1% in the January-March period.
Orders for computers and electronic products fell 0.5%, while those for primary metals dropped 1.1%. Machinery orders rose 0.3% after dropping 2.0% in March. Orders for electrical equipment, appliances and components increased 0.9%
Transportation equipment orders tumbled 5.9% in April after rising 6.0% in the prior month. Orders for civilian aircraft and parts plunged 25.2%. Motor vehicles and parts orders fell 1.7%.
The commerce department also said April orders for nondefence capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, declined 1.0% instead of the 0.9% drop reported in May.
Orders for these so-called core capital goods rose 0.3% in March. Shipments of core capital goods, which are used to calculate business equipment spending in the GDP report, were unchanged as previously reported.
Core capital goods shipments fell 0.6% in March. Business spending on equipment contracted in the first quarter for the first time in three years.