August Durable Goods Orders Post Surprise Drop

WASHINGTON – New orders for long-lasting U.S. manufactured goods took a surprise tumble last month as demand for automobiles dropped sharply, a government report showed on Thursday.

Orders for durable goods (search), items intended to last three years or more, decreased 0.9 percent in August, the Commerce Department said. It was the first decline since April and bucked expectations on Wall Street for a 0.6 percent rise.

While the report suggested a pickup in manufacturing activity might not be as robust as some analysts had expected, the department did revise up its figure for durable orders in July to a 1.5 percent gain from the previously reported 1 percent advance.

In August, orders excluding transportation fell a more modest 0.3 percent. The department said demand for transportation equipment dropped 2.2 percent, pulled down by a 7.5 percent plunge in orders for motor vehicles and a 9.6 percent falloff in orders for civilian aircraft.

Overall capital goods orders rose 2.2 percent, but a 35.3 percent increase for the military was behind the gain.

Non-defense capital goods orders actually fell 2 percent and those orders excluding aircraft, which many economists look to as a sign of business investment plans, slid 0.8 percent. The report suggested a long-sought pickup in business spending was proving a bit weaker than many had hoped, although figures for July were bumped up a bit.

Federal Reserve (search) officials had welcomed the recent pickup in capital goods orders as a sign a long dearth in business spending was finally easing. A collapse in business investment led the economy into recession in early 2001 and officials have said a revival is needed to ensure a broad-based, sustainable economic expansion.

Fed Governor Donald Kohn said on Wednesday there were signs "the sense of gloom" among businesses was lifting, although firms were still hesitant to increase hiring or rebuild inventories, which are at historically low levels in relation to sales.