WASHINGTON – Orders for big-ticket items from U.S. manufacturers fell sharply last month, the government said on Thursday in a report likely to dash hopes that a turnaround in the factory sector is around the corner.
U.S. durable goods orders slid 2.0 percent in June to $184.11 billion following a 2.7 percent rise in May, the Commerce Department said.
Excluding the volatile transportation sector, orders for durable goods -- which include items like refrigerators, cars and washing machines that are meant to last for several years or more -- fell 1.5 percent.
The data was far worse than expected by Wall Street analysts who on average estimated durable goods orders dropped 0.8 percent in June.
Most U.S. Treasuries rose after the data were released, as the weakness in durables goods orders bolstered hopes for lower interest rates, despite a sharp tumble in jobless claims during the past week.
The report was a blow to hopes the manufacturing sector may be climbing its way out of a deep recession, hopes that were strengthened last month after the government reported across-the-board increases in durable goods orders.
But in June, those gains were nearly erased.
Orders for cars and car parts plunged 5.0 percent in June after posting a 6.8 percent increase in May, the department said. Computers and electronic product orders fell 3.2 percent last month following a 0.6 percent gain in May.
Airplane orders were down 1.5 percent in June following a 2.5 percent gain in May.
Compared with June 2000, durable goods orders were down a whopping 22 percent last month. Year-to-date, durable orders were down 11.6 percent through June compared with the first six months of 2000.
On a positive note, inventories of durable products fell for the fifth straight month in June, declining 0.7 percent last month following a matching 0.7 percent decrease in May, Commerce said. Compared to a year ago, inventories were down 0.5 percent in June.
Economists have been keeping a close eye on inventory levels, which had ballooned as firms had stocked up in expectation that the red-hot demand seen in early 2000 would continue. When demand fell sharply at the end of 2000, inventories grew, leading to a slide in demand at manufacturers. That forced factories to slow or shut down production and to lay off thousands of workers.
Some analysts and Federal Reserve officials have expressed concern that the sharp slowdown in the manufacturing sector could spread to other parts of the economy as factory workers out of their jobs stop spending and repeated headlines of manufacturing layoffs sap worker confidence across-the-board.
However, analysts usually caution against reading too much into the government's durable goods report, which is notorious for seesawing month-to-month since a large change in just one sector, such as aircraft, can distort the overall number.