Durable goods bookings tumble

By Tom Stundza -- Purchasing, 12/27/2006 7:41:00 AM

Excluding volatile transportation orders, which are heavily skewed by aircraft, durable goods orders fell by 1.1% in November, according to a Commerce Department report. It was the second consecutive monthly drop in durables orders excluding transportation, and the fourth decline in the last five months. Economists reviewing this data and December’s national purchasing and manufacturing plans now believe businesses will continue to pare back on new-order bookings and inventories well into spring of next year. This meshes with Purchasingdata.com’s December survey of buyers, which found 75% planning to maintain the status quo or reduce their 90-day buying plans.

Production by manufacturing industries has been stuck between 80% and 81% of capacity since last December, according to Federal Reserve Board data, caused primarily by weaker-than-expected output of metalworked products and machinery, coupled with marginal declines in utilities and mining output. Transportation equipment orders rose 9.4% in November, bolstered by a 7.2% gain in civilian aircraft orders and a 40% surge in defense aircraft and parts. U.S. manufacturing of other products has slowed significantly in the past three months, the Commerce report says, as businesses have slashed production in response to excessive inventories.

In November, production of numerous capital investment products was lackluster, as core capital goods orders declined for the second consecutive month, reports economist Daniel Jester at Moody's Economy.com in West Chester, Pa. “This relative weakness will continue in the near term,” he says, “as businesses look to bring inventories back into line and adjust to more modest aggregate demand.” His analysis suggests more production cuts are forthcoming because of reduced October-November purchasing of motor vehicle parts, appliances, primary metals, fabricated metals, heavy and light machinery and electrical equipment.