Orders for Durable Goods in U.S. Unexpectedly Fell

Orders for U.S. durable goods unexpectedly fell in February, led by the biggest slump ever in demand for machinery that indicates companies are becoming more reluctant to invest as the economy heads into a recession.

The 1.7 percent drop followed a 4.7 percent decrease in the prior month, the Commerce Department said today in Washington. Excluding orders for transportation equipment, which tend to be volatile, bookings fell 2.6 percent, the most since January 2007.

Businesses are cutting back on equipment purchases as the biggest housing downturn in a quarter century hurts sales, and rising fuel costs erode profit. Improving demand from overseas is the only thing preventing manufacturing from declining even more.

``Businesses definitely have shown they are beginning to retrench,'' said Aaron Smith, senior economist at Moody's Economy.com in West Chester, Pennsylvania, in an interview with Bloomberg Television. ``Demand is weakening and investment intentions are showing a bit of fatigue.''

Treasuries rose after the report, pushing yields lower. The benchmark 10-year note yielded 3.46 percent as of 8:51 a.m. in New York, down 4 basis points from yesterday.

Economists projected orders would rise 0.7 percent, according to the median of 69 forecasts in a Bloomberg News survey, after a previously reported 5.3 percent slump in January. Estimates ranged from an increase of 3 percent to a 1 percent drop.

Excluding transportation equipment, orders were forecast to fall 0.3 percent after a decline of 1.6 percent.

Durable Goods Sales

Sales of durable goods, those made to last several years, dropped 2.8 percent in February, the most since September 2006. The decline was led by a 31 percent slump in shipments of semiconductors.

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, decreased 2.6 percent, the most since October. Shipments of those items, used in calculating gross domestic product, dropped 2.1 percent, the most since January 2007.

Orders excluding defense equipment decreased 1.6 percent and bookings for military gear dropped 10 percent.

The slump in orders was paced by a 13 percent decline in demand for machinery that was the biggest since comparable records began in 1992. Bookings for fabricated metals and automobiles also fell.

Vehicle makers may see little relief ahead as softer sales lead to bigger discounts.

Uncertainty at GM

``There's a lot more economic uncertainty than we thought,'' Mark LaNeve, North American marketing chief for General Motors Corp., the world's largest automaker, said in a Bloomberg Television interview on March 19. ``With consumers in a pinch and some of the liquidity and credit issues we are experiencing in the economy, we are being more aggressive with incentives.''

A strike at auto-parts supplier American Axle & Manufacturing Holdings Inc. that has idled several automobile plants may also be contributing to the decline at vehicle makers. The four-week walkout has led to slowdowns at GM plants and at companies that supply parts and ship vehicles.

Orders for computers, communications equipment and electrical appliances improved last month.

Manufacturing Weakness

Other factory surveys signal weakness. The Fed Bank of Philadelphia's index of business activity showed manufacturing contracted in March for the fourth month in a row. A similar measure from the New York Fed showed manufacturing shrank this month at the fastest pace since records began in 2001.

The Federal Reserve cut its main lending rate by three- quarters of a percentage point to 2.25 percent on March 18 in an attempt to prop up the faltering economy and restore faith in the U.S. financial system.

``Recent information indicates that the outlook for economic activity has weakened further,'' policy makers said in a statement after the meeting.

Manufacturers are getting help from growth in emerging markets. Terex Corp., the world's third-largest maker of construction equipment, is facing a record backlog in crane orders on surging overseas demand. The Westport, Connecticut- based company said it plans to expand facilities in China and India and expects to meet a goal of $12 billion in sales by 2010.

``Accelerated growth in developing markets'' is driving growth, Chief Executive Officer Ron DeFeo said at a trade show in Las Vegas on March 12. ``We're running as fast as we can to add as much capacity as we can.''