New orders for the products of American factories fell for the fifth month in a row as the spreading stagnation in the world economy, falling oil prices and a stronger dollar cut into demand.
Factory orders dropped 3.4 percent in December, according to information from the Commerce Department today, following a 1.7 percent decline in November that more than doubled on revision from the initial -0.7 percent. Economists in the Bloomberg survey had forecast a 2.4 percent decrease. The weakness was spread across a wide spectrum of industries, though pronounced in the energy sector.
Manufacturing is being hampered by a recession in Japan, a near recession in Europe, the slowing Chinese economy and weakness in emerging markets countries. The soaring dollar, up 18 percent against the euro since May has made U.S. exports more expensive for foreign buyers. American energy producers have drastically cut back on capital investment as the crude oil price has fallen by more than half in seven months.
Factory orders outside the volatile transportation sector fell 2.3 percent in December, the biggest drop since March 2013, after slipping 1.3 percent in November and 1.5 percent in October. Non-defense orders sank 3.2 percent, the third negative month in a row after November's 1.3 percent drop and October's 1.2 percent decrease. It was the largest drop in orders since March 2013.
The number of unfilled orders at factories slipped 0.8 percent in December, the first fall in 10 months.
The Institute for Supply Management also reported declining sentiment in its purchasing managers index yesterday, with the January index dropping to 53.5 from the downwardly revised 55.1 December result. Economists has expected a 54.5 reading. It was the weakest score in a year and the fourth month in a row of lower sentiment numbers.
Orders for non-defense capital goods excluding aircraft in December, seen as a measure of business investment and released last month as part of the durable goods orders report, was revised to -0.1 percent instead of the 0.6 percent drop originally reported.
Shipments of these same goods, which are used to calculate equipment spending in gross domestic product rose 0.2 percent in December instead of the previously reported 0.2 percent fall.
In a separate report the New York National Association of Purchasing Managers reported that its purchasing managers index plunged to 44.5 in January from 70.8 the month before. It was the largest one month drop since May 2007.
Chief Market Strategist
WorldWideMarkets Online Trading