New orders at U.S. factories fell more than expected in May, stoking fears of weakening demand for American-made goods. This is also causing concern for the security of thousands of U.S. manufacturing jobs.
According to a report from the U.S. Census Bureau, factory orders fell by a seasonally adjusted 0.8% in May to $464.9 billion. This compares to analyst forecasts of a decline of 0.5% and represents the biggest slide since November 2016. In April, U.S. factory orders were revised down to 0.3% from an initial estimate of a 0.2% decrease.
New orders for manufactured durable goods fell 0.8%, or $1.9 billion, to $229.1 billion. This followed a 0.8% decrease in April. Transportation equipment was also down for two consecutive months–$2.4 billion, or three percent, to $75.9 billion. New orders for manufactured non-durable goods, like fuel and drugs, decreased $1.8 billion, or 0.8 percent, to $235.7 billion. Excluding defense, and new U.S. factory orders tumbled 0.5%.
This is a bad sign for U.S. factory workers, as the manufacturing sector is responsible for approximately 12% of the U.S. economy.
Manufacturing had been on the uptick since 2015 and 2016 thanks to a slight recovery in the energy sector. This led to increased demand for oil and drilling equipment.
But it was short lived. Manufacturing is slowing as oil prices slide and motor vehicle sales tumble.
Auto sales in June fell for the fourth straight month, leading to increased inventory. Meanwhile, oil prices continue to get hammered after the Organization of the Petroleum Exporting Countries (OPEC) announced June exports increased and Russia ruled out any cuts in oil production. On top of that, a strong U.S. dollar is also making American products more expensive overseas.
Not surprisingly, overall U.S. economic growth has been underwhelming. In the first quarter, the U.S. economy advanced just 1.4%. Consumer spending on durable goods fell at a 1.6% annual pace, the weakest showing since early 2011.
The weaker-than-expected U.S. factory orders also signal that second-quarter GDP might be weaker than expected. Despite weak U.S. economic data, the Atlanta Fed expects second-quarter 2017 GDP to come in at a robust three percent, up from 2.7% at the end of June.
But not everyone at the Federal Reserve is optimistic about U.S. GDP growth. The New York Federal Reserve is predicting second-quarter GDP to come in at 1.9% and third-quarter U.S. GDP of 1.6%.
“Monthly Full Report on Manufacturers’ Shipments, Inventories, and Orders May 2017,” U.S. Census Bureau, July 5, 2017.
“GDPNow,” Federal Reserve Bank of Atlanta, last accessed July 5, 2017.
“Nowcasting Report,” Federal Reserve Bank of New York, last accessed July 5, 2017.