U.S. Factory Orders Drop Unexpectedly

Drop off in demand for defense equipment and machinery

Lower demand for machinery and defense equipment prompted a fall in factory orders in February, the Commerce Department said on March 24, dashing hopes for a rebound after start-of-year blizzards.

New orders for big-ticket items -- such as planes, computers and cars -- fell 0.9% during the month, led by a 4.2% drop in machinery orders.

That shocked economists, who had expected orders to rise.

"The February data on new orders for long-lasting goods suggests an unwelcome softening in a critical source of demand for U.S. manufacturing," said Cliff Waldman, economist for the Manufacturers Alliance/MAPI. "Excluding the volatile transportation component, new orders declined by 0.6% on the heels of a 3% fall in January. The sluggish demand profile for key supply chain sectors potentially foreshadows some loss of momentum for the strength of factory output. These monthly data are notoriously volatile and year-to-date changes remain distinctly positive. But short-term signals are, at best, mixed.

"Most notably, new orders for non-defense capital goods excluding aircraft, a proxy for business equipment spending, have now declined for two consecutive months," he added. "Buoyed by the fiscal stimulus package enacted in December 2010 and still strong demand from key emerging market economies, the U.S. factory sector will continue to be an important element of a sub-par U.S. economic recovery. Nonetheless, pronounced weakness in housing and labor markets, growing fiscal uncertainty, and significantly increased global risks have likely been weighing, and will likely continue to weigh, on the confidence of business decision makers and therefore constitute headwinds for capital spending activity and U.S. manufacturing prospects."

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