Factory Orders in the U.S. Decrease 5.1%, Most in 8 Years

By Timothy R. Homan

Dec. 4 (Bloomberg) -- Orders placed with U.S. factories in October fell by the most in 8 years, signaling a decline in manufacturing will contribute to deepening the recession.

Demand dropped 5.1 percent, more than forecast and the biggest fall since July 2000, after a revised 3.1 percent decrease in September, the Commerce Department said today in Washington. Excluding transportation gear, bookings dropped for a third consecutive month.

Companies are cutting back on investments as access to credit dries up and global demand slows. The recession that began a year ago is likely to extend well into 2009 amid worsening slumps in housing and manufacturing.

``The general deterioration in both domestic and external demand suggests bleaker times lie ahead for America's factories,'' Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report.

A larger-than-anticipated 4.09 million Americans received government unemployment checks in the week ended Nov. 22, the most since December 1982, the Labor Department reported today in Washington. First-time applications declined by 21,000 to 509,000 in the week that ended Nov. 29, which included the Thanksgiving Day holiday.

Factory orders were forecast to fall 4.5 percent, after a previously reported 2.5 percent drop the prior month, according to the median estimate of 57 economists surveyed by Bloomberg News. Projections ranged from declines of 1.8 percent to 7 percent.

Durables Drop

Orders for durable goods, which are those meant to last three years and make up just less than half of total factory demand, dropped 6.9 percent, the most since October 2006. Just last week, Commerce estimated the decline at 6.2 percent.

Most major categories, including metals, machinery, computers and transportation equipment, fell.

Boeing Co., the world's second-biggest commercial-airplane maker, said it received 14 orders for aircraft in October, down from 41 the previous month. The Chicago-based company resolved an 8-week strike on Nov. 1 by 27,000 machinists that weighed on October orders.

Bookings for autos and parts dropped 2.8 percent. U.S. automakers remain in a slump. Sales plunged 37 percent last month to a 10.2 million annual rate, the lowest in 26 years, according to industry figures released this week.

Demand for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 5 percent, also more than Commerce estimated in last week's durable goods report. Shipments of those goods, used to calculate gross domestic product, decreased 3.5 percent.

Price Slump

Orders for non-durable goods, including food, petroleum and chemicals, slumped 3.4 percent. Orders for petroleum and coal products dropped 12 percent, partly reflecting lower costs.

Commodity prices have plummeted in recent months, dragging down the overall value of factory orders. Crude oil traded at $46 a barrel yesterday on the New York Mercantile Exchange after reaching a record high of $147 in July.

Eastman Chemical Co., the largest U.S. producer of plastic for beverage bottles, said this week that fourth-quarter earnings will trail the companys October estimate after sales dropped more than expected in the past month.

Eastman, based in Kingsport, Tennessee, is shutting plants because sales are expected to tumble more than 20 percent in the quarter on lower prices and a demand slump exceeding 15 percent, Chief Financial Officer Curt Espeland said Dec. 2 in a presentation broadcast on the Internet from New York.

Chemical Makers

Rivals such as Dow Chemical Co. and BASF SE also are slashing output as the U.S. recession spreads to other regions. Asian consumption has dropped rapidly, Espeland said.

The U.S. economy weakened across all districts since the middle of October amid tighter credit conditions, the Federal Reserve said yesterday in its survey of regional economic conditions known as the Beige Book. Manufacturing ``declined noticeably'' since the last report on Oct. 15, the Fed said.

Factory activity contracted in November at the fastest pace in 26 years, the Tempe, Arizona-based Institute for Supply Management said this week.

The U.S. economy contracted at a 0.5 percent annual rate in the third quarter.

Factory inventories decreased 0.6 percent, and manufacturers had enough goods on hand to last 1.33 months at the current sales pace.

Falling demand is hurting manufacturers such as U.S. Steel Corp. The largest U.S. steelmaker by 2007 sales said this week it will cut output at three facilities because of a slump in demand, leaving about 3,500 employees temporarily out of work.

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