New business for the American manufacturing industry fell for the second month in a row and by the largest amount in a year as weak foreign demand and the slowing domestic economy dented order books.
New orders to U.S. factories dropped 2.9 percent in December, reported the Commerce Department on Thursday, and November placements were revised substantially lower to -0.7 percent from -0.2 percent. Analysts had forecast a decline of 2.8 percent. Monthly orders averaged a 0.3 percent drop in 2015.
Annual orders were down 3.9 in December. This is the 14th straight monthly decline in annual orders, a string of negatives that has never been seen before in the U.S. outside of recession since these records began in 1960. On average orders were 6.3 percent lower each month in 2015 from the prior year.
Factory orders minus the transport industry, in practice largely the civilian aircraft business of Boeing Company of Chicago, slipped 0.8 percent in December and November was revised to -0.7 percent from -0.3 percent.
Transportation sector orders tumbled 12.6 percent in December, primarily reflecting a decline in airplane orders. Automobile orders rose 1.4 percent.
Manufacturing, which comprises about 12 percent of the American economy, has been hammered by an accumulation of inventory from excessively optimistic GDP growth projections early last year, by the effect of a much stronger U.S dollar on exports and by the collapse in capital spending and business in the energy industry, hit by cratering crude oil prices.
The trade weighted dollar index, also called the 'broad dollar' calculated by the Fed and balanced by currency to reflect the size of each nation’s trade with the U. S. has gained 12.6 percent since the beginning of 2015 and and 22.7 percent from the start of 2014. This has placed a large drag on the ability of U.S. firms to compete with overseas companies, particularly in the high-tech and value added goods that comprise the majority of U.S. exports.
America is the world’s third lagest exporter by value of goods, after China and the EU and before Germany, though its gross national product is far less dependent on exports than export dominated nations like Germany, China, Japan and Korea.
Orders for durable goods, products designed to last three year or more and initially reported on January 28th for December at -5.1 percent was revised slightly higher to -5.0 percent, according to the Commerce Department.
Orders for non-defense capital goods excluding aircraft, also called ‘core capital goods’ and used as a measure of business investment and reported last month as part of the original durable goods release, was unchanged at -4.3 percent.
Shipments of these same goods, which are used by the government to calculate business spending in GDP, were judged to have risen 0.2 percent rather than the first listed fall of 0.2 percent. This should help to balance the poor December consumer spending figures in the second iteration of 4th quarter GDP which is to be released on February 26th.
Inventories of goods produced but not sold at U.S. factories rose in December after five straight months of declines as sales lagged. The inventories-to-shipments ratio rose to 1.38 from 1.35 in November, indicating that firms will have to reduce stocks before manufacturing can increase and add to GDP.
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Annual Factory Orders (histogram) and U.S. GDP (line)