U.S. Durable Orders Fall Twice as Much as Forecast

By Timothy R. Homan and Shobhana Chandra

Nov. 26 (Bloomberg) -- Orders for U.S. durable goods fell twice as much as forecast in October as the credit freeze deepened and sales tumbled.

The 6.2 percent drop in bookings of goods meant to last several years was the biggest in two years and followed a revised 0.2 percent decrease in September, the Commerce Department reported today in Washington. A separate report from Commerce showed consumer spending fell by the most since the 2001 recession.

Companies are likely to keep cutting back as sales slump. Regional reports have shown further weakness in manufacturing this month as access to credit dried up, indicating declines in business investment will hurt economic growth through the rest of the year and into 2009.

``Businesses are accelerating the pace of jobs cuts and canceling investment plans,'' Michelle Meyer, an economist at Barclays Capital in New York, said before the report. ``The economy appears to have fallen into a deep recession.''

A Labor Department report showed that initial claims for unemployment insurance last week slipped to 529,000 from 543,000 the prior week, while remaining close to the highest level since 1992.

Treasuries Rally

Treasuries, which rose earlier in the day, stayed higher after today's reports. Yields on benchmark 10-year notes fell to 3.09 percent at 8:48 a.m. in New York, from 3.12 percent late yesterday. Futures contracts on the Standard & Poor's 500 Stock Index dropped 1.6 percent to 839.20.

Economists projected orders would fall 3 percent after a previously reported 0.9 percent increase in September, according to the median of 72 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 6.5 percent to a gain of 0.5 percent.

Excluding demand for transportation equipment, which tends to be volatile, orders dropped 4.4 percent, also more than anticipated and the biggest decline since January 2002. Those bookings were projected to fall 1.6 percent, according to the Bloomberg survey.

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, decreased 4 percent, the biggest decline in almost two years. Shipments of those items, used in calculating gross domestic product, fell 2.4 percent following a 1.6 percent gain in September.

Transport Orders

Bookings for transportation equipment fell 11 percent, today's report showed. Orders for commercial aircraft dropped 4.7 percent and those for automobiles declined 4.5 percent.

Boeing Co., the world's second-largest commercial planemaker, said it received 14 orders for aircraft in October, down from 41 the previous month. A strike by 27,000 machinists at the Chicago-based company probably hindered demand. The walkout was resolved on Nov. 1.

Auto-industry figures released this month showed cars and light trucks sold at a 10.6 million annual pace in October, the lowest since April 1991.

National manufacturing reports signaled broad declines in bookings as companies failed to secure financing for big purchases. Manufacturing contracted in October at the fastest pace in 26 years, the Tempe, Arizona-based Institute for Supply Management reported earlier this month.

Regional Reports

Regional reports indicate the decline in manufacturing is accelerating. The New York Fed's general economic index fell this month to the lowest level since record-keeping began in 2001. The Philadelphia Fed said manufacturing in its region shrank at the fastest pace in 18 years.

Today's report may lead some economists to lower forecasts for growth in the fourth quarter. Preliminary figures on gross domestic product from the Commerce Department yesterday showed the economy contracted at a 0.5 percent annual rate from July through September. It was the second drop in a year and the biggest since the 2001 recession.

U.S. lawmakers postponed until December a vote on whether to give American automakers $25 billion in new federal loans. Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi gave the companies a Dec. 2 deadline to present restructuring plans.

A slowdown in consumer spending and business investment is causing manufacturers to cut back. Fleetwood Enterprises, the third-largest U.S. maker of recreational vehicles, said it's closing 8 of its 24 plants because of reduced demand for travel trailers and factory-built housing.

``In the current economic climate, it is essential that we match our production to demand,'' Chief Executive Officer Elden Smith said in a Nov. 24 statement. ``We must position Fleetwood to operate profitably under the present and foreseeable business circumstances.''

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