WASHINGTON — Orders to manufacturers unexpectedly dropped in September and households were more glum in October for a third consecutive month, showing the U.S. economy was taking a step back heading into the fiscal gridlock that partially shut down the federal government.
Bookings for non-military capital goods excluding aircraft, which reflect demand for productivity-enhancing equipment like machinery and electrical gear, decreased 1.1 percent last month, the second drop in three months, the Commerce Department reported Friday in Washington. Other data showed consumer sentiment sank to a 10-month low.
Like consumers and households, were seeing the same kind of erosion of confidence in the business community, said Millan Mulraine, director of U.S. rates research at TD Securities USA in New York. Political uncertainty has reduced the incentive on the part of U.S. businesses to engage in meaningful capital expenditures.
A rebound in manufacturing, which accounts for about 12 percent of the economy, will depend on how quickly confidence is restored as lawmakers turn to meeting new budget deadlines in early 2014. Disappointing gains in employment and the prospect of a protracted political battle raises the risk that consumer spending will cool heading into the holiday-shopping season.
A U.S. slowdown would come as some of the nations trading partners are showing signs of strengthening. Economic growth in Britain accelerated in the third quarter to its fastest pace in more than three years as the recovery continued across all main industries, figures from the Office for National Statistics showed Friday in London.
The Thomson Reuters/University of Michigan final consumer sentiment index for the U.S. decreased to 73.2 in October, the weakest this year, from 77.5 in September, the group reported. The index averaged 89 in the five years prior to the recession that began in December 2007, and 64.2 during the 18-month slump that ended in June 2009.
The decline in capital goods orders for September reported by the Commerce Department was at odds with most forecasts. The median estimate in a Bloomberg survey of 16 economists called for a 1 percent gain. The figures also showed a surge in aircraft demand led to a 3.7 percent jump in total durable goods bookings.
The more you look into it, the more disappointing it gets, said Tim Quinlan, an economist at Wells Fargo Securities in Charlotte. It kind of raises doubts about the sustainability of the manufacturing sector to continue to underpin economic growth.
Orders excluding transportation equipment, where demand is often volatile month to month, fell 0.1 percent after a 0.4 percent decrease in August.
Demand for non-defense capital goods excluding aircraft decreased in September after a 0.4 percent gain in August and a 3.5 percent slump in July. Such orders are considered a proxy for future business investment in computers, electronics and other equipment.
Shipments of those products, a measure used to calculate gross domestic product, fell 0.2 percent in September after rising 1.1 percent the prior month. Sales were down 2.9 percent over the past three months at an annualized rate, compared with a 0.9 percent decline at the end of the second quarter.
Fridays report showed bookings for commercial aircraft increased 57.5 percent in September after a 5.4 percent gain. Chicago-based Boeing said it received 127 aircraft orders in September, up from 16 the previous month.
Demand for motor vehicles has also been a bright spot for manufacturers, with cars and light trucks selling at a 15.2 million annualized rate in September after climbing in August to the fastest annualized pace since 2007, figures from Wards Automotive Group showed.
The vehicle fleet has aged, so really vehicle assembly has nowhere to go but up, said Mike Englund, chief economist at Action Economics in Boulder, Colo., adding that Boeing, the worlds largest planemaker, is also looking at a bottomless pit of orders.