Factory orders drop double what expected

/ Source: The Associated Press

Orders to U.S. factories fell for a second straight month, a worse-than-expected performance that reinforced worries that the risk of recession is rising.

The Commerce Department reported Wednesday that factory orders dropped by 1.3 percent in February, about double the downturn that economists had been expecting. Orders had fallen an even bigger 2.3 percent in January, the largest decline in five months.

The falloff in demand was widespread, with steep declines in orders for motor vehicles, various types of heavy machinery and demand for iron and steel.

Many economists believe a prolonged housing slowdown and credit crunch have already pushed the country into a recession. Federal Reserve Chairman Ben Bernanke, testifying before the Joint Economic Committee on Wednesday, said that the economy could shrink over the first half of this year, his most pessimistic assessment to date.

"It now appears likely that gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told lawmakers. Under one rule, six straight months of declining GDP would constitute a recession.

Bernanke said he still expected economic growth to strengthen in the second half of the year but he said, "In light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside."

The report on factory orders showed demand falling by 1.1 percent for durable goods, items expected to last at least three years, while orders for non-durable goods, products such as oil and chemicals, fell by 1.5 percent.

The weakness in manufacturing occurred even though orders for commercial airplanes rose by 5.1 percent in February, rebounding from a big decline in January. Orders for motor vehicles fell by 2 percent in February after no gain in January. Automakers are struggling with weak demand in the face of soaring gasoline prices.

Overall, orders for transportation products posted a 1.8 percent rise in February as the strength in commercial and defense aircraft orders as well as higher demand for ships and boats offset the drop in motor vehicles.

Orders for heavy machinery plunged by 12.3 percent in February, the biggest decline since January 2004, while orders for iron and steel fell by 2.3 percent.