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Tags: factory | orders | economy | coronavirus

Factory Orders Post Record 10.3% Decline as Virus Hits Supply Chains

Factory Orders Post Record 10.3% Decline as Virus Hits Supply Chains

Monday, 04 May 2020 03:28 PM EDT

New orders for U.S.-made goods suffered a record decline in March and could sink further as disruptions from the novel coronavirus fracture supply chains and depress exports.

The report from the Commerce Department on Monday was the latest in a series of increasingly bleak economic data. It also bolstered analysts' views that the economy would struggle to rebound even as parts of the country start to reopen after nationwide lockdowns to slow the spread of COVID-19, the respiratory illness caused by the virus.

"This is going to be an extremely difficult first half for manufacturing," said Ryan Sweet, a senior director at Moody's Analytics in West Chester, Pennsylvania. "The coronavirus has significantly disrupted global supply chains."

Factory orders dropped 10.3%, the largest decrease since the series started in 1992, after dipping 0.1% in February. Economists polled by Reuters had forecast factory orders would tumble 9.7% in March.

Factory orders decreased 2.8% year-on-year in March.

Manufacturing, which accounts for 11% of U.S. economic activity, is, together with the rest of the economy, reeling from nationwide lockdowns to slow the spread of COVID-19.

The Institute for Supply Management (ISM) reported on Friday that its measure of national factory activity dropped to an 11-month low in April. The ISM's forward-looking new orders sub-index plumbed to levels last seen in December 2008.

Manufacturing was already under pressure from the Trump administration's trade war with China. Manufacturing output declined in the first quarter at its sharpest pace in 11 years. Business investment has contracted for four straight quarters.

The longest economic expansion in U.S. history ended in the first quarter, with gross domestic product declining at a 4.8% annualized rate, its steepest pace since the 2007-2009 Great Recession.

Stocks on Wall Street fell amid a U.S.-China spat about the origins of the coronavirus outbreak. The dollar rose against a basket of currencies, while U.S. Treasury prices fell.


Monday's report showed unfilled orders at factories dropping 2.0% in March after nudging up 0.1% in the prior month. Inventories at factories fell 0.8% in March after declining 0.4% in February. Shipments of manufactured goods decreased 5.2% in March after slipping 0.3% in the prior month.

Economists said the continued drawdown of factory inventories suggested a much sharper pace of stock depletion relative to what the government assumed in its advance GDP estimate of the first quarter that was published last week.

The government estimated that business inventories fell at a $16.3 billion rate in the January-March quarter after increasing at a $13.1 billion pace in the fourth quarter.

Based on the factory orders data, the inventory liquidation was much bigger than initially thought, economists say, suggesting the government would lower the first-quarter GDP estimate when it publishes revisions later this month.

"With the latest information now in hand, we think the first-quarter real change in inventories is tracking around a minus $57 billion rate," said Daniel Silver, an economist at JPMorgan in New York. "We lowered our tracking of first-quarter real GDP growth by 0.8% percentage point to a minus 5.5% rate."

Economists say it would take at least two years to bring the economy back to pre-coronavirus levels. They expect a wave of bankruptcies and a long period of high unemployment.

At least 30 million Americans have filed claims for unemployment benefits since mid-March when state and local government ordered nonessential workers to stay at home to slow the spread of COVID-19.

In March, transportation equipment orders plunged 41.3% after increasing 4.6% in the prior month. Orders were weighed down by a 296.2% dive in demand for civilian aircraft and parts. Though Boeing said its aircraft orders rose in March relative to February, it also reported big cancellations of its troubled 737 MAX jetliner, which has been grounded since March 2019 following two fatal crashes.

There was a 65.3% decline in orders for ships and boats in March. Motor vehicle and parts orders dropped 6.7% in March. That offset a 63.7% surge in orders for defense aircraft and parts. Machinery orders fell 0.5% in March after decreasing 1.1% in February. But orders for electrical equipment, appliances and components orders increased 0.8% in March.

The government also reported that orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, dipped 0.1% in March instead of edging up 0.1% as reported last month.

Shipments of core capital goods, which are used to calculate business equipment spending in the GDP report, fell 0.2% in March as previously reported. 

© 2023 Thomson/Reuters. All rights reserved.

New orders for U.S.-made goods suffered a record decline in March and could sink further as disruptions from the novel coronavirus fracture supply chains and depress exports.
factory, orders, economy, coronavirus
Monday, 04 May 2020 03:28 PM
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