AP News

Ahead of the Bell: US durable goods

WASHINGTON (AP) — Orders to U.S. factories for long-lasting manufactured goods likely tumbled in August, further evidence of a slowdown in manufacturing.

Economists expected that orders for durable goods fell 4.5 percent in August, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EDT Thursday.

In July, orders for durable goods, products expected to last at least three years, rose 4.1 percent. However, orders for core capital goods, a proxy for business investment, plunged 4 percent. Demand was down for heavy machinery, computers and autos.

U.S. manufacturing has been weakening for a number of months, reflecting in part spreading global economic weakness, which has dampened demand for U.S. exports.

Less factory production has sapped a critical source of growth and jobs in the United States. The trend is expected to keep growth and hiring tepid through the November elections.

The Institute for Supply Management said that U.S. factory activity shrank for a third straight month in August.

The ISM index dipped to 49.6 in August, the lowest level in three years and down from 49.8 in July. It's the first time the index has stayed below 50 for three straight months since July 2009, a month after the recession officially ended.

A reading below 50 indicates contraction in the sector. But the index typically must fall to about 43 to indicate that the overall economy is in recession, according to the ISM.

Many economists believe the economy is growing at a lackluster rate of between 1.5 percent and 2 percent in the July-September quarter. Growth at or below 2 percent isn't enough to significantly lower the unemployment rate, which was at 8.1 percent in August.

U.S. companies have said they are receiving fewer orders from overseas. Europe's financial crisis has pushed many European nations into recession. Growth has also slowed in large developing nations including China, India and Brazil.

About one-fifth of U.S. exports go to Europe. An additional 7 percent of exports are shipped to China. The concern is that weakening overseas demand along with sluggish growth in the United States will force factories to start cutting back on production.Companies don't know how bad Europe's crisis will be. And they also are worried about tax increases and deep spending cuts that are set to take place at the start of next year if Congress doesn't reach a budget agreement.

There is another potential problem: U.S. manufacturers said they are facing rising prices for raw materials, including oil, steel and corn. Corn prices are rising sharply due to the drought in the Midwest.

The weakness in manufacturing comes even as automakers, a big driver of growth all year, are still reporting strong gains.

The Federal Reserve, concerned about the sluggish U.S. economy and high unemployment, announced earlier this month that it was beginning a third round of bond purchases in an effort to push long-term interest rates down further as a way to stimulate economic growth. The Fed said it would purchase $40 billion in mortgage-backed bonds each month and would consider expanding its efforts until it saw substantial gains in the job market.

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