Orders to U.S. factories for big-ticket manufactured goods fell in April by the largest amount in three months as aircraft orders plunged and demand for computers and other electronic products dropped by the largest amount in nearly six years.
The Commerce Department reported that demand for airplanes, appliances and other durable goods decreased by 4.8 percent last month, much larger than Wall Street had been expecting. Orders had posted strong gains of 6.6 percent in March and 3.6 percent in February.
The April setback was the largest since a 7.6 percent drop in January and reflected a 32.2 percent falloff in demand for commercial aircraft after big gains in previous months and a 10.4 percent decrease in orders for computers and other electronic products. It was the biggest decline in this category since July 2000.
While the overall economy is expected to slow in the current quarter, the size of the drop in durable goods orders caught analysts by surprise. They had been expecting a smaller — 0.5 percent — pullback following strong gains in previous months. The month-to-month changes in durable goods orders are extremely volatile and other indicators continue to point to strength in the manufacturing sector.
The Institute for Supply Management reported that its index for manufacturing rose to 57.3 in April, the highest level in six months, led by strength in production and employment.
Analysts noted that the April orders decline followed two months of strong gains.
“Large declines in communications, aerospace and defense equipment industries account for the poor showing in April, but a correction is understandable because these same three industries posted exceptionally strong growth in February and March,” said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.
Even with the April decline, durable goods orders for the first four months of this year are up 11 percent over the same period in 2005, Meckstroth said.
U.S. manufacturing companies, the hardest hit sector in the 2001 recession, are expected to continue posting sizable gains this year, driven by efforts to rebuild lean inventories and continued strong business investment.
For April, orders fell by $10.5 billion to a seasonally adjusted total of $210.2 billion.
Demand in the transportation sector fell by 12.7 percent , reflecting a 1.6 percent drop in orders for motor vehicles and parts and a 32.2 percent fall in demand for commercial aircraft, a category that had posted gains of 67.7 percent in March and 72 percent in February.
Demand for military aircraft fell by 24.4 percent in April following a small 0.7 percent increase in March.
Excluding the often volatile transportation category, new orders dropped by 1.1 percent following a 3.5 percent increase in March and a 1.2 percent fall in February.
The 10.4 percent fall in orders for computers and other electronic products was the biggest drop since an 11.7 percent plunge in this category in July 2000, a time when businesses were cutting back sharply on investments in information technology, one of the factors that brought on the 2001 recession.
Orders for computers fell by 1.3 percent last month while demand for communications equipment was down 27.4 percent.