Factory Orders Rise Less Than Expected

By MARTIN CRUTSINGER

WASHINGTON – Orders to U.S. factories posted a smaller-than-expected increase in November as demand for autos, machinery and steel all posted declines, reflecting the slowdown that has hit the manufacturing sector.

The Commerce Department reported that orders for manufactured goods rose by 0.9 percent, only a slight rebound after a sharp 4.5 percent drop in October. Analysts had been expecting a stronger 1.4 percent increase.

The November performance provided evidence that the slowing economy is beginning to have an impact on manufacturers, with auto plants and sectors supplying the slumping housing industry among some of the hardest hit.

A separate report showed that service industries, where most Americans work, were also experiencing the impact of the economic slowdown. A closely watched gauge of nonmanufacturing activity compiled by the Institute for Supply Managemement edged down slightly to a reading of 57.1 in December compared to 58.9 in November.

The 0.9 percent increase in demand for manufactured goods pushed total orders to $394.3 billion. It reflected a 1.6 percent rise in demand for durable goods, slightly below an initial estimate of 1.9 percent, and an unchanged reading for nondurable goods. With the economy slowing sharply this year, orders have been down three of the past five months.

Meanwhile, the nation’s big retailers reported that the holiday shopping season turned out to be worse than expected with retailers in all categories reporting disappointing results for December.

After a rousing start right after Thanksgiving, many stores struggled during December as warmer-than-usual weather depressed sales for winter clothing. Analysts said the sales results were also depressed by the shift to purchasing gift cards, which are not counted as sales until they are redeemed.

Wal-Mart Stores Inc. reported a better-than-expected 1.6 percent increase in December at stores open at least a year, but the gain followed a decline of 0.1 percent in same-store sales in November, the first drop in a decade. Among the retailers whose sales fell below expectations were Limited Brands and Bebe Stores Inc.

In other economic news, the number of laid-off workers filing claims for unemployment benefits shot up to 329,000 last week, a gain of 10,000 from the previous week and the largest total since late November.

The strength in orders in November was led by a 43.6 percent surge in demand for military aircraft. Orders for commercial airplanes rose a smaller 0.8 percent while orders for motor vehicles fell by 2.4 percent, reflecting a continued sales slump as consumers turn away from the once-hot gas guzzling sport utility vehicles.

Industries tied to the slumping housing market also showed weakness with furniture orders falling by 3.3 percent while demand for household appliances dropped by 7.8 percent.

The total number of jobless claims was the largest since 358,000 claims were filed the week of Nov. 25 and the advance was well above the increase analysts had been expecting although some said they believed the rise was heavily influenced by problems the government has for adjusting for seasonal changes around holidays.

Employers have been reluctant to lay off existing workers although they have trimmed plans to hire new workers in the face of the serious housing slump that has depressed overall economic growth.

Analysts believe that when the unemployment report is released on Friday it will show that the jobless rate remained stable at 4.5 percent in December as businesses created 110,000 new jobs. That would be down from 132,000 jobs added in November.

The economy slowed to a lackluster growth rate of just 2 percent in the summer as a steep slide in housing construction trimmed 1.2 percentage points from growth. Analysts believe housing subtracted a similar amount from growth in the final three months of this year and will continue to depress activity through the middle of 2007.

In addition to the weakness in housing, auto manufacturers have also been struggling to reduce a high backlog of unsold vehicles.

However, analysts say there is a slim chance of a recession as a result of the problems in housing and manufacturing. They also say they believe the slowdown will cause the jobless rate to rise to around 5 percent this year but think economic activity will pick up in the second half of 2007.