AP News

Ahead of the Bell: US Factory Orders

WASHINGTON (AP) — Companies likely cut their orders to U.S. factories in August, largely because of a steep drop in volatile demand for airplanes.

Economists forecast that factory orders dropped 1.6 percent in August, according to a survey by FactSet. Factory orders jumped 2.8 percent in July, the biggest gain in a year.

The Commerce Department will release the August report at 10 a.m. Eastern Thursday.

A preliminary report last week showed orders for long-lasting manufactured goods dropped 13.2 percent in August. Much of the decline was driven by a plunge in aircraft orders. Boeing received cancellations of some of its prior orders.

Excluding transportation equipment, orders fell 1.6 percent. Orders for defense-related goods dragged down the total.

In one hopeful sign, demand for business equipment and software, a proxy for corporate investment plans, rose in August for the first time since May. But that increase followed two steep declines.

The report Friday will update the government's estimate of durable goods orders and also provide information on demand for non-durable goods, such as food and clothing, paper and chemical products.

The manufacturing sector has sent mixed signals recently. The decline in durable goods orders suggests businesses are getting more cautious.

But 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. That indicates that factory activity may increase after a summer slowdown.

And auto sales jumped last month to nearly 1.2 million, an increase of 13 percent compared to a year earlier. That's a sign consumers are still willing to spend on expensive goods, even as job growth remains weak.

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 their growth slow.

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 percent in the April-June quarter, down from 2 percent at the beginning of the year. That's not fast enough to encourage much hiring. Economists expect growth will remain at about 2 percent for the rest of the year.

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