October U.S. goods orders drop 6.2%, consumer spending down

U.S. durable goods orders tumbled out of bed in October, posting the biggest drop in two years, while individual Americans also reined in their spending in the same month, according to data released Wednesday.

The U.S. Commerce Department said orders for manufactured goods in October fell by an eye-popping 6.2 per cent, more than twice as much as economists had expected.

October's report was the largest drop since the same month in 2006, the agency said.

October also represented the third straight monthly decline for this economic indicator. The Commerce Department revised its September figures to show a drop of 0.2 per cent in that month, down from a gain of 0.8 per cent when first reported.

Dropping orders and shipments

Besides fewer new orders, U.S. companies shipped less goods in October. Shipments of durable goods, a figure slightly higher in dollar value than the new orders number, fell 2.4 per cent in the month.

U.S. manufacturers have suffered as the credit crunch lessens the appetite of Americans and corporations for big ticket purchases, such as computers and some types of capital equipment.

Durable goods orders (%) October -6.2 September -0.2 August -5.5Source: U.S. Commerce Dept.

Most indicators of the health of the country's goods-producing sectors have shown negative results in recent months.

U.S. factory orders, a slightly different indicator than durable goods orders, fell by 2.5 per cent in September. Some analysts, however, downplayed this report as the result of oil refineries shutting because of Hurricane Ike.

Besides fewer orders, companies are also building up excessive inventories, a sign that they either expect to have a booming last two months of 2008 or they will be stuck discounting products to get them out of the warehouse.

In October, company inventories grew by 0.4 per cent, the 15th month in the past 16 where firms added to, rather than reduced, product backlogs.

Consumers cut spending

Given the negative headlines concerning the economy in the past two months, reduced consumer spending might be a foregone conclusion.

Americans spent less in October, as consumer spending across the United States fell by one full percentage point. The decrease, totaling $103 billion US in lower expenditures, followed a decline in September, which posted a more modest drop of 0.3 per cent.

Removing the effect of rising prices from consumer expenditures, individual purchases dropped 0.5 per cent in October, continuing a negative trend that has existed since at least June.

Consumer spending (constant $) (%)October -0.5 September-0.4 August-0.1July -0.6 Source: U.S. Commerce Dept.

Consumers are taking their spending down a notch, partly in response to rising unemployment indicators in the United States.

Initial jobless claims fell by 14,000 for the week ended Nov. 22, but represented only a slight improvement compared with the 16-month high for this dismal indicator.

The initial jobless claims still remained well above the 500,000 mark.

Some good data

Not all of Wednesday's financial news was bad.

American wages and salaries went up in October, 0.3 per cent, a sign that individuals have more coin in their pockets.

As well, personal savings jumped in the month. What Americans put away in savings rose to 2.4 per cent of disposable income in October, compared with one per cent in the previous month.

But Americans still have a long way to go to dig themselves out of debt. September figures indicated that U.S. consumer debt reached almost $26 trillion in the month, up $6.9 billion compared with August.