Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=103665
Story Retrieval Date: 10/24/2014 2:46:42 AM CST

Top Stories
Features

New factory orders spell more doom and gloom for American economy

by Fui Tsikata
Nov 04, 2008


FACORDRS

New factory orders in the U.S. fell in September to $432 billion, a decrease of $11.2 billion or 2.5 percent from the previous month, according to the Commerce Department.

Excluding transportation, the decline was 3.7 percent to $376.7 billion from August's $391 billion. “This was the largest decrease since the series was first stated,” according to the report.

To Adolfo Laurenti, an economist at Mesirow Financial Holdings Inc., in Chicago, the report did not come as a surprise. “It was nothing that wasn’t expected,” said Laurenti. “These numbers probably suggest we entered a recession at the end of the summer.”

The overall decline in new factory orders was caused by a 5.5 percent drop to $224 billion in new non-durable goods ordered. New orders for manufactured durable goods were up $1.8 billion to $207.9 billion.  

Shipments of manufactured non-durable goods decreased by $13 billion to $224.1 billion, due in large part to a decline of $10.9 billion or 16.9 percent in shipments of coal and petroleum products. “This was the largest decrease in petroleum and coal products since September 2006,” according to the report.

Shipments of manufactured durable goods were up $0.5 billion to $209 billion.

In more gloomy forecasts, Laurenti said, the numbers “suggest that the economy will stay weak for the coming few months.”

Morningstar Inc.’s John Kearney echoed that view and said, “We won’t see any meaningful up-tick until late 2009, potentially even later.”

Kearney also said manufacturing companies are going to have to tighten their belts.

“This is something that people have already been seeing,” Kearney said. “We’ve already seen companies make some restructuring efforts to get their costs in line.”

Kearney said this is bound to translate to more job cuts as more companies reduce their costs.

Inventories also declined from $562.8 billion to $558.7 billion, an indication of manufacturing companies adjustments to the economy. As the economy slows businesses are having to contend with a slowing demand.

Unfilled orders increased $3 billion to to 829.5 billion, “the highest level since the series first stated on a NAICS basis in 1992.”

Laurenti said these levels mean “companies are adding very little to their inventories because they don’t want to be caught with inventory sitting around” in a slow economy.”

Some manufacturing companies are better poised to withstand the downturn, according to Kearney. “Companies that have outsourced a lot of their production to other companies will fare better,” Kearney said.