Factory orders drop ... unexpectedly

The Obama administration got hit with two pieces of bad news at the front end of their “Recovery Summer.”  The unemployment report didn’t do much to roil the markets, as investors had predicted the bad news and planned accordingly.  An unexpected decline in factory orders, however, sent the markets sliding lower immediately:


New orders for factory products tumbled much more than expected in May, posting their sharpest drop since the depth of the recession and their first decline in nine months, a government report showed on Friday.

Factory orders fell 1.4 percent in the month, the Commerce Department said, the steepest drop since March of last year. Analysts polled by Reuters were expecting a more modest 0.5 percent decline.

The Dow slid below 9700 as investors got even gloomier:

Stocks turned firmly lower Friday after a disappointing report on factory orders. The market had wobbled at the start as investors digested the June jobs report. …

Factory orders fell 1.4 percent May, nearly triple of what economists had expected.

The report is another blow to the recovery as early signs had indicated that manufacturing was leading this recovery even as the consumer remained sluggish.

Manufacturing actually added 9,000 jobs last month, so this drop back to a 15-month low may mean that those jobs will be back on the chopping block this summer.   The drop in factory orders also draws to a close a year-long movement towards inventory growth rather than actual consumption.  In the last three quarters, inventory restocking has played a significant part in the growth numbers seen in the GDP figures announced by Commerce.  In 2009Q4’s 5.7% annualized growth rate, inventory management accounted for all but 2.2% of the growth, and it also played a significant if smaller role in 2010Q1’s adjusted overall annualized rate of 2.7%.


Unfortunately, that trend wasn’t going to last forever if consumer confidence remained low.  It dropped in June by a surprisingly large amount, driven at least in part by high unemployment and concern over the housing market, which collapsed again in May.  With that in mind, inventory becomes a liability, and orders will continue to drop until consumers start spending again.

And when even the Associated Press is saying that the economy is “hitting the skids” — in its headline! — what other word comes to mind but “unexpected”?

The economic rebound is stalling.

A raft of weak new reports Thursday provided the strongest evidence yet that the recovery is slowing and added to concerns that the nation could be on its way back into recession.

Most notable was a rise in the number of people filing for unemployment benefits for the first time. The four-week average for jobless claims now stands at its highest point since March.

The bleak indicators come just after Congress adjourned for the holiday weekend without extending jobless benefits, and a day ahead of a report expected to show only modest improvement in the national job market.

On top of that, the housing market appears to be slumping again, and the Dow Jones industrials closed down for the sixth trading day in a row. Add in slower growth in China and the Europe debt crisis, and economists are scaling back their forecasts for the U.S.


That was written last night, before the factory orders report was published.  Enjoy Recovery Summer Bummer!

Join the conversation as a VIP Member

Trending on HotAir Videos