Orders for manufactured goods from U.S. companies decreased last month, signaling continued challenges for the manufacturing sector and the economy as a whole.

New orders for United States manufactured goods fell by 0.4 percent in October, following a downwardly revised 0.1 percent decline in September and marking the second consecutive monthly decrease, according to the U.S. Department of Commerce this week. The total value of new orders dropped by $1.6 billion to $450 billion for the month, largely due to a decline in transportation equipment.

The drop was roughly in line with expectations, as economists polled by MarketWatch had forecast new orders to decline by around 0.4 percent in October.

Concerns about instability in international markets, particularly Europe’s ongoing debt crisis, are likely responsible for the contraction in demand, as many businesses have become cautious about spending.

“Anticipation of a stumbling world economic expansion should Europe’s financial strain trigger a recession probably curbed manufacturers in the short run,” Bloomberg News reports. “Other reports have shown stronger equipment sales, export demand, and consumer spending during the holidays alongside leaner inventories, which are laying the groundwork for a production pick up to rebuild stockpiles.”

Excluding the often volatile transportation sector, which decreased 5.1 percent in October, new orders for manufactured goods actually rose by 0.2 percent. Shipments, up five consecutive months, continued to increase in October, climbing 0.6 percent to $455.4 billion.

Orders for durable goods — which are intended to last three years or more — decreased 0.5 percent to $198.5 billion in October, the second consecutive monthly contraction. Transportation equipment had the steepest loss in this category, dropping 5.1 percent to $47.2 billion, led by ships and boats, which plummeted 38.2 percent, and commercial aircraft, which fell 16.8 percent.

Meanwhile, orders for capital goods, which serve as an indicator of future business investment, fell 5.5 percent in October, following a 2.8 percent decline in September. Excluding aircraft, capital goods orders dropped 0.8 percent, following a 1.4 percent gain in September.

“Capital goods order activity in October was disappointing and the up and down movement reflects the uncertainty that exists in the economy,” Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, explained in an analysis of a related Commerce Department report. “Business equipment production growth, though, is still much stronger than in consumer-related industries.”

Unfilled orders for durable goods, up 18 of the last 19 months, rose 0.2 percent to $885.9 billion in October, following a 0.6 percent increase in September. Machinery had the largest increase, climbing 1.3 percent to $117.3 billion.

Inventories for manufactured goods rose 0.9 percent to $607 billion, following a 0.1 percent increase in September. The latest gain in stockpiles continues the trend of rising inventories in recent months and signals that many manufacturers are optimistic about their future sales.

Business activity in the manufacturing sector and demand for manufactured goods are likely to receive a boost at the end of the year, as consumer spending ramps up through the holiday season.

“Manufacturing has been showing signs of rebounding after slowing earlier this year. Other indicators suggest that has continued,” the Associated Press explains. “Other reports in recent weeks show the economy is picking up. Holiday sales got off to a good start after Thanksgiving and auto sales posted big gains in November. Both should help increase factory production in the coming months.”

Resources

Full Report on Manufacturers’ Shipments, Inventories and Orders — October 2011
U.S. Department of Commerce, Dec. 5, 2011

Factory Orders Fall 0.4% in October
MarketWatch, Dec. 5, 2011

Orders to U.S. Factories Decreased in October for Second Month
by Alex Kowalski
Bloomberg News, Dec. 5, 2011

…Business Equipment Production Stronger than Consumer-Related Industries
by Daniel J. Meckstroth
Manufacturers Alliance/MAPI, Nov. 23, 2011

Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders — October 2011
U.S. Department of Commerce, Nov. 23, 2011

U.S. Factory Orders Fall for Second Straight Month
by Derek Kravitz
The Associated Press, Dec. 5, 2011