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Originally published October 4, 2007 at 12:00 AM | Page modified October 4, 2007 at 6:01 PM

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Factory orders decline 3.3% in August amid turbulent market

Orders to factories fell in August by the largest amount in seven months, reflecting weakness across a wide swath of manufacturing as the...

The Associated Press

WASHINGTON — Orders to factories fell in August by the largest amount in seven months, reflecting weakness across a wide swath of manufacturing as the turbulent financial markets made businesses more cautious.

The Commerce Department said today that orders dropped by 3.3 percent in August, even worse than the expected 2.8 percent decline. It was the biggest setback since orders fell 4.2 percent in January.

Demand for commercial aircraft fell 39.9 percent, leading the decline. Orders also were weak for other industries, from autos and home appliances to industrial machinery and steel.

Orders for durable goods, which are items expected to last at least three years, fell by 4.9 percent. Demand for nondurable goods, such as food, clothing and gasoline, declined 1.6 percent.

In a troublesome sign, business demand for nondefense capital goods excluding aircraft — considered a good gauge for investment plans — dropped 0.5 percent in August.

This decline was blamed partly on greater caution among businesses in the face of the credit crunch, which caused the stock market's turbulence in the late summer.

The drop in factory orders included big declines in two industries affected by troubles in the housing market. Demand for home appliances fell 7.2 percent and orders for furniture slipped 4.4 percent.

Some economists are worried that the steepest housing slump in 16 years and the biggest credit crunch in nearly a decade could push the country into a full-blown recession. But other analysts believe the economy will muddle through without a downturn.

"The numbers look soft, but not recession-soft," said David Wyss, chief economist at Standard & Poor's in New York. He said overall economic growth probably slowed to about 2.7 percent in the just-completed July through September quarter and will slow to about 1.5 percent in the final three months of the year.

A recession is often defined as two consecutive quarters of falling economic output.

In other news, the Labor Department said the number of newly laid off workers filing claims for unemployment benefits shot up by 16,000 to 317,000. It was the largest one-week rise in four months.

While the increase was bigger than had been expected, analysts said it followed two weeks in which claims had fallen, leaving the weekly number little changed over the past month.

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Department analysts said that the two-day auto strike involving General Motors did not appear to have a significant impact on the claims figures last week, according to preliminary information from the states.

Analysts believe the unemployment rate probably rose in September to 4.7 percent, from 4.6 percent in August, although they are expecting that businesses added 100,000 jobs to their payrolls.

That would be an improvement from the net loss of 4,000 jobs in August, the first monthly job loss in four years. The employment data for September is to be released on Friday.

Wall Street is closely following the unemployment report. Investors believe it will provide the key piece of data for the Federal Reserve to decide whether to cut interest rates further.

After the release of the surprisingly bad jobs report for August, the Fed decided to cut a key interest rate for the first time in four years — by one-half of a percentage point, which was larger than expected.

Copyright © 2007 The Seattle Times Company

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