Aug 27, 2012 03:35 PM EDT
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Demands For US Durable Goods Decrease In July

Airplane
(Photo : Reuters) The manufacturing of an airplane

Orders for long-lasting US factory goods, excluding the volatile transportation category, fell in July for the fourth time in five months, a sign that manufacturing may be faltering.

The Commerce Department said Friday that orders for durable goods rose a seasonally adjusted 4.2 percent in July. But excluding aircraft and other transportation goods, orders dropped 0.4 percent.

Aircraft orders soared 54 percent. Boeing, one of the biggest global aircraft manufacturers, received 260 orders last month, according to economists at IHS Global Insight, up from 21 in June.

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Durable goods are items meant to last at least three years. Orders for so-called core capital goods, a key measure of business investment plans, fell 3.4 percent. That's the biggest drop since November and the fourth decline in five months.

Core capital goods include computers, industrial machinery and steel. The steady decline in such orders suggests that companies are worried that the economy will slow and are reducing investment. Europe's financial crisis has pushed that region to the brink of recession, threatening exports of U.S. goods. Economies in China, India and Brazil are also growing more slowly.

The US economy is also at risk of going off a "fiscal cliff" at the end of the year. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.

This week, the Congressional Budget Office warned that if the fiscal crisis remained unresolved all next year, it would probably tip the US economy into a recession. Unemployment would rise to around 9 percent by late next year as a result of the spending cuts and tax increases, the CBO said. Unemployment is now 8.3 percent.

Some economists worry that companies may be postponing spending until the budget crisis is resolved.

Manufacturing, a key source of growth earlier in the recovery, has already shown signs of weakness. Factory activity shrank for the second straight month in July, according to a survey by the Institute for Supply Management, a trade group.

A separate report last week by the Federal Reserve painted a more positive picture: It said factory output rose last month, largely because of a jump in auto production. That likely occurred because many car makers skipped their traditional summer shutdowns. Economists worry that those gains in auto production will reverse in August.

The economy has shown modest improvement in recent weeks, but analysts don't expect growth to accelerate much. Growth may improve to an annual rate just below 2 percent in the July-September quarter, economists forecast. That's not much better than the 1.5 percent annual pace in the April-June period.

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