The Commerce Department said Thursday that factory orders dropped 5.2 per cent in August, the biggest decline in more than three years. The loss was largely because demand for commercial aircraft plunged 102 per cent. That pulled down orders for long-lasting manufactured goods by 13.2 per cent.
In one positive sign, orders for business equipment and software, often considered a proxy for investment plans, rose 1.1 per cent, after two steep declines. Still, orders for steel, electrical equipment, and industrial machinery all fell.
Orders for non-durable goods, which include food, clothing, and gas, rose 2.2 per cent. The increase mostly reflected higher gas prices.
Manufacturing, which helped pulled the economy out of the Great Recession, has weakened since the spring, along with the broader economy. Slower global growth has hurt demand for American exports, while U.S. consumers and businesses have been cautious about spending.
Steven Wood, chief economist with Insight Economics, said manufacturing and capital spending are likely to stay sluggish, at least for a few more months.
But there have been some signs that things may be pick up.
A survey of purchasing managers released Monday showed that manufacturing activity expanded in September after three months of declines. Factories received more new orders in September and also increased hiring.
And auto sales jumped last month to nearly 1.2 million, an increase of 13 per cent compared to a year earlier. That suggests consumers are still willing to spend on expensive goods, even as job growth remains weak.
"If September's better result is sustained, it would be very good news," Joshua Shapiro, an economist at MFR Inc., said in a note to clients, referring to the manufacturing survey.
Still, U.S. manufacturers face several challenges ahead. Europe's financial crisis has pushed six of the 17 countries that use the euro into recession, a development that threatens exports of U.S. goods. And economies in other parts of the world, including big U.S. export markets such as China, India and Brazil, are also seeing slower growth.
Many business leaders are concerned about the "fiscal cliff," a package of steep tax increases and sharp spending cuts scheduled to kick in at the beginning of next year. The Congressional Budget Office and many private economists say that if a deal isn't reached to postpone the changes, the economy could fall back into recession.
The economy expanded at an annual rate of only 1.3 per cent in the April-June quarter, down from 2 per cent at the beginning of the year. That's not fast enough to encourage much hiring. Economists expect growth will remain at about 2 per cent for the rest of the year.