US Factory Orders Drop On Faltering Aircraft Demand

Dragged down by a precipitous slump in demand for civilian aircraft, U.S. factory orders dropped at the highest rate in three years during March, data released by the Commerce Department Wednesday showed.

The release solidified evidence that the incipient economic recovery in the United States, which had been driven by manufacturing growth in the past few months, remains shaky. It also contrasted with other recent data releases, including one made Tuesday by the private Institute for Supply Management that showed manufacturing revving up in April.

Orders for manufactured goods declined 1.5 percent to $460.46 billion. Durable goods orders declined 4.0 percent during the month, after having increased 1.9 percent in the previous monthly period. That large decline, the largest since January of 2009, was mainly caused by a slowdown of 12.6 percent in the transportation sector, where orders for civilian aircraft went down by half.

Wednesday's sharp decline had been anticipated by economists and the headline drop matched a consensus of economists queried by the Dow Jones Newswires.

In fact, some were even looking at the silver lining in the report.

All in all, the picture of subdued business spending growth in Q1 remains, but the outlook is brighter, in our view, Peter Newland, an economist at Barclays Capital, said in a ntoe to clients. Consumer demand picked up in Q1, manufacturing output growth has been sustained into Q2 (if yesterday's ISM report is reflective) and corporate sector balance sheets remain in relatively good health.

Following the release of the report, the benchmark S&P 500 Index of U.S. equities dropped by nearly a third of a percentage point on what was already a down day. U.S. stocks recovered in the hour since, and recently traded at 1,398.59, down half a percentage point for the day.