October Durables Prove Fragile

October Durables Prove Fragile

Maurna Desmond

Decline in orders of manufactured goods is twice as bad as expected.

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October's U.S. durable goods orders proved much less resilient than forecast by economists, falling by its steepest degree in two years, as overall economic weakness sapped demand for bigger-ticket items.

The U.S. government reported Wednesday that October durable goods orders tumbled a sharper than expected 6.2%, versus the 3.0% slide economists had expected. Transportation orders were particularly weak, falling 4.4%, whereas a decline of 1.6% had been forecast. September’s durable goods orders were downwardly revised to a 0.2% fall, from the 0.9% increase initially reported.

U.S. manufacturing is being hurt by the economic slowdown that began with the U.S. subprime mortgage crisis and has since spread around the globe. American exports, which had enjoyed surprising strength this year thanks in part to a weakening dollar, showed new signs of trouble. Demand for autos fell 4.5% in October, and commercial aircraft orders declined 4.7%. Detroit's Big Three automakers were rebufffed by lawmakers last week when they asked for a $25.0 billion bailout loan to help them survive the credit crunch.

October personal consumption expenditures, a measure of price changes in consumer goods and services, were flat month over month, as expected, while core PCE, which excludes food and energy, increased by 2.1% year over year which was a little less than the 2.2% analysts had expected. This backward-looking measure of the change in prices is a favorite of the Federal Reserve, which likes to see core PCE at or below 2.0%.

Personal income rose more than expected during October, increasing by 0.3%, when only a 0.1% gain was expected. The boost in household means did not loosen American wallets, though. Personal spending fell by 1.0% which was two percentage points below the 1.0% increase analysts had forecast. The slide in consumption reflects the sudden vogue for thrift among Americans who are panicked by Wall Street's troubles and increasing Main Street woes such as rising unemployment and foreclosures. Reined-in spending could cause the economy to contract further because consumer spending accounts for roughly 80.0% of U.S. gross domestic product, whose growth turned negative in the most recent quarter.

In a break from a string of recent bad news on the job front (see "Lines Grow A The Unemployment Office"), the Labor Department reported Wednesday that the number of Americans filing for initial unemployment claims was 529,000 during the week ended November 22; analysts had expected 537,000. The week's total was a decrease of 14,000 from the previous week's revised figure of 543,000. However, the four-week moving average, which smooths out fluctuations, came in at 518,000, an increase of 11,000 from the previous week's revised average of 507,000.

--The Associated Press contributed to this article.