Orders to U.S. factories fell by the biggest amount in nearly two years in August as the credit crisis began to hit the manufacturing sector, the government said Thursday. The Commerce Department reported that orders for manufactured items fell by 4 percent in August from the previous month, far worse than the 2.5 percent decline expected by economists. It was the largest monthly drop since a 4.8 percent tumble in October 2006. August's weakness was led by big declines in orders for aircraft, which fell 38.1 percent, and cars, which fell by 10.6 percent. Orders for durable goods—expensive manufactured items expected to last at least three years—fell by 4.8 percent, and orders for non-durable goods—such as petroleum products, clothing, and food—fell by 3.3 percent. Orders for non-defense capital goods excluding aircraft—considered a good indicator of business investment plans—fell by 2.4 percent, the biggest drop in the category in 19 months. The decline indicates that businesses are reducing their investment plans amid the weak U.S. economy, and that growing credit strains are making it difficult for firms to obtain loans to expand and modernize. The U.S. Senate late Wednesday approved a Bush administration-backed bill to provide $700 billion to the Treasury Department to buy bad mortgage debt from the financial sector as a way to get banks to resume normal lending operations. However, analysts are worried that the credit crisis is so severe that the country is headed for a recession despite the largest government market intervention since the Great Depression of the 1930s. Thursday's factory-orders report followed a report Wednesday from the Institute for Supply Management showing that U.S. manufacturing activity fell to near-recessionary levels.
