February 27, 2008

WASHINGTON (AP) -- Orders to U.S. factories for big-ticket manufactured goods plunged in January by the largest amount in five months as manufacturers got caught in the weakness engulfing the rest of the economy.

The Commerce Department reported Wednesday that new orders dropped by 5.3% last month, reflecting declines across a wide swath of industry from commercial aircraft and autos to heavy machinery and computers.

The worse-than-expected decline was the latest in a string of reports indicating that the economy, battered by a prolonged slump in housing, a serious credit squeeze and soaring energy prices, is in danger of toppling into a recession.

A growing number of analysts believe the economy will slip into a recession this quarter although they expect the downturn to be short and mild, thanks to aggressive interest rate cuts from the Federal Reserve and a $168 billion economic stimulus package passed by Congress earlier this month. Millions of households will begin seeing rebate checks in May that should give the economy a boost starting this summer.

The 5.3% decline in durable goods for January was the first setback since October and was the biggest decline since a similar 5.3% drop last August.

The weakness was led by a 13.4% decrease in orders for transportation equipment, which reflected a 30.5% plunge in demand for commercial aircraft, a very volatile category, and a 0.8% fall in demand for motor vehicles and parts. It was the second straight drop in autos and underscored the problems facing domestic automakers as they struggle with weak demand in the face of surging gasoline prices and plunging consumer confidence.

The overall economy skidded to a barely discernible growth rate of 0.6% in the final three months of last year and many analysts believe that the gross domestic product may turn negative in the current quarter and the second quarter this year, meeting the classic definition of a recession as consumers, whose confidence levels have plunged to the lowest levels in five years, cut back on spending.

Also of concern is what the weakness in the consumer sector will do to business confidence. The new durable goods report showed that a key indicator of business investment dropped in January by the largest amount in three months. Orders for non-defense capital goods excluding aircraft, considered a good proxy for business investment, fell by 1.4% last month.

In other signs of weakness, orders for machinery were down 1.4%, orders for computers plunged by 11.7% and orders for fabricated metals fell by 4.1%