The orders for factory goods in the U.S. fell for the second straight month in September as the manufacturing industry continues to struggle from the weight of a strong dollar and huge cuts in spending by the energy companies.
According to the Commerce Department last Tuesday, new orders for manufactured goods have decreased 1.0 percent after the 2.1% drop last August.
The manufacturing sector’s activities, which accounts for approximately 12% of the economy, are being constrained primarily because businesses are trying to reduce inventory and increase global demand. However, reports on Monday showed that orders have risen in October for the first time since July.
The Effects of a Strong Dollar
Since June 2014, the dollar has gained 16.8% against the currencies of the main trading partners of the US; which affected export growth and profits of multinational companies.
Orders for transportation equipment also dropped to 3.1% in September as well, which mainly reflects on the decrease in the orders from aircrafts. On the other hand, the production of motor vehicle and its parts has increased by 1.5% in September as orders came rushing in.
The Commerce Department released a statement saying that the orders for non-defense capital goods except the aircraft (which is seen as a measure of confidence and spending plans in business) has slipped 0.1%. This actually signals the end of the “worst” in the manufacturing industry.
The results last September may be due to the 36% fall in the volatile category of commercial aircrafts; however, the fall was widespread in many categories such as computers, machinery, and metals.
The U.S. manufacturing industry has been constrained this year due to the strong dollar, making their products less competitive in other countries. China’s weak economy, as well as other major foreign markets also contributed to the cut in exports.
Shipments of Goods
The shipments of the capital goods, used to measure spending in business equipment in the gross domestic product (GDP) report last month, has risen by 0.5% in September.
Inventories of the factory goods, on the other hand, dropped 0.4% after a similar decrease last August; which is a good sign for the sector. This, however, left the inventory and shipments ratio unchanged at 1.35.
According to the GDP report, economic growth has slowed to a moderate rate of 1.5% from July to September after the 3.9% increase in the second quarter of the year. Several economists, on the other hand, project a 2.5% increase during the last quarter.