Orders to factories for big-ticket manufactured goods fell in October for a third straight month, the longest stretch of weakness in nearly four years.
The Commerce Department reported that orders for durable goods declined 0.4 percent last month, a weaker showing than expected. The October decline followed even bigger decreases of 1.4 percent in September and 5.3 percent in August, raising worries that the steep plunge in housing is beginning to drag down other sectors of the economy.
While economic growth roared ahead at a rate approaching 5 percent in the summer, many economists believe growth has slowed dramatically in the current quarter from the combined blows of the most severe housing slump in more than two decades, a serious credit crunch and rising energy prices.
The government will release its latest look at overall economic activity on Thursday and it is expected to show growth at an annual rate of around 4.9 percent in the July-September quarter. However, growth in the current October-December period is expected to slump to a barely discernible 1.5 percent or even less.
Many economists have raised the odds that the country could fall into an outright recession to as high as 40 percent although they believe that the Federal Reserve, which has already cut interest rates twice since September, will keep reducing rates if economic activity continues to falter.
In remarks Wednesday, Federal Reserve Vice Chairman Donald Kohn said that the Fed’s monetary policies needed to be nimble to address current risks.
“The increased (financial market) turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and in October,” Kohn said in remarks to the Council on Foreign Relations.
One of the troubling aspects of the report on durable goods was that orders for capital goods excluding aircraft, a category considered a good proxy for business investment, fell by 2.3 percent in October, the biggest decline since a 2.4 percent fall in February.
It had been hoped that business investment would offset part of the slump in housing. However, the October decline, if it continues, could show that businesses are cutting back on their plans to buy new equipment in the face of widening economic problems.
Excluding the volatile transportation category, durable goods orders fell by 0.7 percent in October, the biggest drop since a 1.7 percent fall in August.