FLASH: New orders for US made goods fell in April and shipments dropped by the most in 2 years, indicating continued weakness in manufacturing activity that could undercut the broader economy.
Factory goods orders declined 0.8%, pulled down by soft demand for transportation equipment, computers and electronic orders, and primary metals, the Commerce Department said Tuesday.
Data for March was revised down to show factory orders increasing 1.3% instead of surging 1.9% as previously reported.
Economists polled by Reuters had forecast factory orders would fall -0.9% in April. Factory orders rose 1.6% compared to April 2018. Manufacturing, which accounts for about 12% of the economy, is being squeezed by businesses placing fewer orders while working off stockpiles of unsold goods in warehouses.
The inventory bloat is concentrated in the automotive sector, which is experiencing weaker sales. Inventories at factories rose 0.3%. The stock of unsold goods has increased in seven of the last eight months.
Shipments of manufactured goods fell 0.5% 0.5% in April, the largest fall since April 2017, after rising 0.2% in March. The inventories-to-shipments ratio increased to 1.37 from 1.36 in March.
Boeing’s (NYSE:BA) move to cut production of its troubled 737 MAX aircraft is also hurting manufacturing.
The sector could see more disruptions to the supply chain after President Donald announced last week that he would impose a tariff on all goods from Mexico in a bid to stem the tide of illegal immigration across the US-Mexican border, starting at 5% on 10 June.
The weak factory orders data was flagged by a report last month showing a drop in demand for long-lasting manufactured goods in April, as well as a drop in manufacturing production.
A survey Monday showed a measure of national factory activity dropped to a 31-month low in May, with manufacturers expressing concern over the US-China trade tensions. Pointing to further weakness in manufacturing activity, unfilled orders at factories slipped 0.1% in April, reversing March’s 0.1% rise.
The ISM data joined moderate consumer spending as well as weak home sales and construction outlays in April in suggesting that economic growth was slowing sharply after a temporary boost from trade inventories and defense spending in Q-1.