Factory orders drop for second straight month

United States (US) factory orders fell in June for the second straight month due to lower demand for steel, construction machinery and aircraft.

The Commerce Department said Tuesday that factory orders dropped by 1.2 per cent to a seasonally adjusted US$406.4 billion.

Analysts expected a much smaller drop.

May's decline was revised to a steeper decrease of 1.8 percent. It was initially reported as a 1.4 per cent drop.

The two months of declines follow nine straight months of increases, as manufacturers ramped up production last fall and helped the US economy grow after four quarters of contraction.

But the sector has since shown signs of stumbling, raising concerns the economy will slow in the second half of this year.

On Monday, a trade group said US manufacturing grew for the 12th straight month in July, but at a slower pace.

The factory orders report "suggests that the manufacturing sector has lost some of its growth momentum," John Ryding, an economist at RDQ Economics, wrote in a note to clients.

Other data released Tuesday also showed the economy's momentum slowed at the end of the second quarter. Consumer spending was flat in June, the government said, and personal incomes also remained level.

And the number of buyers who signed contracts to purchase homes fell in June.

The National Association of Realtors says its seasonally adjusted index of sales agreements for previously occupied homes dipped 2.6 per cent to a reading of 75.7. That was the lowest on records dating back to 2001, and down nearly 19 per cent from the same month a year earlier.

Last week, the government said the economy grew at a 2.4 per cent annual rate in the April-June quarter, down from a 3.7 per cent pace in the first quarter.

One bright spot in the factory orders report is that business spending on capital goods such as machinery grew in June by 0.2 per cent. But that was down from a previous estimate of 0.6 per cent.

Aircraft orders, a volatile category, fell by 25.6 per cent in June, the department said. Excluding the transportation sector, orders fell by 1.1 per cent.

The aircraft figures could be distorted by seasonal adjustment. The Boeing Company says on its website that it booked orders for 49 airplanes in June, after only five orders in May and 34 in April.

But the government expects a large number of aircraft orders in the summer, so the impact of the increase is lessened after seasonal adjustment.

Orders for new construction machinery plummeted by 23.2 per cent, after rising sharply in May. Iron and steel mill orders dropped 3.4 per cent.

Orders for durable goods - big-ticket items meant to last at least three years - also fell by 1.2 per cent in June, a steeper drop than the one per cent decline reported last month.

Demand for non-durable goods such as food, clothing and chemical products fell by 1.3 per cent, the department said. Much of that decline was driven by lower spending on oil and coal, which partly reflects the impact of a drop in oil prices.

- AP