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Factory Orders for Durable Goods Plunge an Unexpected 12.4% in July

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From Associated Press

Orders to U.S. factories for costly manufactured goods in July took their biggest-ever-recorded dive as demand fell sharply for airplanes and electronic equipment, more evidence that the economy is finally slowing.

The Commerce Department said Thursday that the larger-than-expected 12.4% decline left orders for durable goods--items expected to last at least three years--at a seasonally adjusted annual rate of $212.4 billion.

In a second report, the number of Americans filing new claims for unemployment benefits rose last week for the fourth week in a row, by 4,000 to 314,000. That suggests the tight labor market is “loosening around the edges,” said Merrill Lynch economist Stan Shipley.

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Excluding the volatile transportation sector, durable-goods orders in July fell 4.8%, the second decrease this year.

“The bottom line for America’s manufacturers is that the economy is slowing to a more sustainable pace, with strong noninflationary growth continuing but at a less accelerated rate,” said National Assn. of Manufacturers economist Dave Huether.

Over the last 14 months, the Federal Reserve has boosted short-term interest rates six times in an effort to cool the economy and keep inflation from escalating.

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Fed policymakers meeting this week cited evidence of a slowing economy in deciding to leave interest rates unchanged for now.

The durable-goods report “shows the economy is just moving at a slower pace than it had, but that doesn’t mean it’s crawled to a stop. The economy continues to forge ahead,” said Richard Yamarone, economist with Argus Research Corp.

July’s performance largely reflected a record 31.7% decline in orders for transportation equipment, mostly due to lower demand for airplanes and aircraft parts, the government said.

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The transportation sector can swing widely from month to month because it includes costly items such as airplanes. For instance, in June, orders for transportation equipment surged 41.7%, helping boost total orders for big-ticket manufactured goods by 9.5%.

Meanwhile, orders for electronics and electrical equipment, including semiconductors, circuit boards and home appliances, declined by 16.8%.

Primary metals, the category that includes steel, had a 1.4% reduction in orders last month.

There was a bright spot in the report for the nation’s manufacturers, however. Orders for industrial machinery, including computers and machine tools, rose 4.3% in July.

Shipments of big-ticket items, a good sign of current demand, fell 1.9% in July.

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Durable Goods

New orders, in billions of dollars, seasonally adjusted:

July: $212.4 billion

Source: Commerce Department

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