Orders for U.S. Durable Goods Drop More Than Forecast

By Timothy R. Homan

Sept. 25 (Bloomberg) -- Orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending.

The 4.5 percent drop in bookings of goods meant to last several years followed a revised 0.8 percent gain in July that was smaller than previously reported. Excluding transportation equipment, orders decreased 3 percent, the biggest drop since January 2007.

The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment. Less U.S. demand and shrinking economies overseas increase the risk that manufacturing will falter.

``This is finally some sort of reaction to a tightness in credit,'' said Rudy Narvas, a senior economist at 4Cast Inc. in New York, whose forecast for the drop in non-transportation orders was closest. ``Plans to invest by companies are being restrained.''

Another government report today showed the number of Americans filing first-time claims for unemployment benefits rose last week to the highest since September 2001 as hurricanes threw thousands out of work in Texas and Louisiana. Initial jobless claims increased by 32,000 to 493,000 in the week that ended Sept. 20, from a revised 461,000 the prior week, the Labor Department said.

Treasuries Higher

Treasuries held earlier gains after the reports, pushing yields lower. The benchmark 10-year note yielded 3.78 percent as of 8:41 a.m., down 3 basis points from yesterday. Stock index futures were higher.

Economists had projected durable goods orders would fall 1.9 percent after a previously reported 1.3 percent increase in July, according to the median of 74 forecast in a Bloomberg News survey. Estimates ranged from a drop of 5.9 percent to a gain of 0.3 percent.

Excluding transportation equipment, orders were projected to fall 0.5 percent, according to the Bloomberg survey. Estimates ranged from a decline of 2.5 percent to an increase of 0.9 percent.

Growth Impact

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, dropped 2 percent after a 0.4 percent increase in July that was smaller than previously estimated. The decline last month was the biggest since January 2007. Shipments of those items, used in calculating gross domestic product, fell 1.7 percent.

Bookings for transportation equipment dropped 8.9 percent, today's report showed. Orders for commercial aircraft decreased 38 percent and those for automobiles fell 8.1 percent, the most since January 2007.

Boeing Co., the world's second-largest commercial planemaker, may have to provide more financing for its customers and may see more cancellations because of the spreading financial turmoil, Chief Executive Officer Jim McNerney said yesterday.

Previous economic slumps saw 5 percent to 10 percent of Boeing's orders canceled, McNerney told reporters after a speech in Boston. This time around, ``it could be a little worse, could be better than that. We'll have to monitor the situation,'' he said. The company has a record $275 billion in order backlogs for commercial planes.

Plane Orders

Chicago-based Boeing received orders for 38 aircraft in August, down from 70 a month earlier. About 27,000 Boeing machinists went on strike on Sept. 6.

Orders for machinery dropped 6.2 percent and demand for metals fell 9.3 percent, the biggest decline since April 1993. The drop in metals may partly reflect the fall in commodity costs in recent months since the figures aren't adjusted for prices.

American manufacturers have offset weakening domestic demand in recent months by filling overseas orders, with support from a lower dollar that's made U.S. goods more competitive. Still, further export expansion is in question as economies overseas falter.

Europe's economy contracted in the second quarter for the first time since the introduction of the euro almost a decade ago. Japan's economy shrank in the same period as consumers spent less and exports fell, the Japanese government said last month.

Slump Spreads

A technology slump that started in the U.S. last quarter spread to Western Europe and some Asian countries, Dell Inc., the second-biggest personal-computer maker, said on Sept. 16, reiterating comments made last month.

``We saw a very weak August,'' Chief Financial Officer Brian Gladden said at a Bank of America Corp. investment conference in San Francisco. ``It is not coming back the way we thought it would.''

Today's report may lead some economists to lower forecasts for growth in the third quarter. Final second-quarter GDP figures from the Commerce Department, due tomorrow, may show the economy expanded at a 3.3 percent annual rate from April through June, the same as reported last month, according to a Bloomberg survey.

Federal Reserve Chairman Ben S. Bernanke said yesterday in testimony before Congress that the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.

``Economic activity appears to have decelerated broadly,'' Bernanke said yesterday in testimony before a congressional Joint Economic Committee hearing. The Fed chief reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion rescue fund to remove devalued assets from the banking system.

To contact the report on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net