Factory orders post their biggest drop of the Obama era

Grim news from Reuters, signaling an uncertain future for the manufacturing sector:

Demand for U.S. factory goods in August fell by the most since January 2009, but the second straight month of gains in orders outside transportation hinted at a less rapid loss of momentum in manufacturing activity.

The Commerce Department said new orders for manufactured goods tumbled 5.2 percent – the biggest drop since the recession – dragged down by a slump in demand for transportation equipment that was telegraphed in last week’s report on orders for long-lasting manufactured goods.

Factory orders had risen 2.8 percent in July and economists had expected them to drop 5.8 percent in August. Excluding transportation, orders rose 0.7 percent in August after rising by the same margin the prior month.

The few fitful sparks of life shown by this economy have been coming from manufacturing, particularly expensive aircraft.  According to Bloomberg Businessweek, the overall 5.2 percent decline ???was largely because demand for commercial aircraft plunged 10.2 percent.???  People are normally scrambling for parachutes after that kind of plunge.

There was a 1.1 percent increase in business equipment and software, which could be taken as a sign of life for long-term investment, but steel, electrical equipment, and industrial machinery all fell.  Rising gas prices and food inflation nudged non-durable goods up by 2.2 percent, which is not exactly good news.  Both national and global economic slowdown are said to be contributing to the reduced orders.

Auto sales are still looking pretty good, which somewhat paradoxically suggests ???consumers are still willing to spend on expensive goods, even as job growth remains weak,??? as Bloomberg puts it.  But on Thursday, Fitch Ratings released a warning that ???industry enthusiasm should be tempered as meaningful near-term risk remains, as long as the U.S. fiscal cliff remains unresolved.???

???Improving consumer confidence, pent-up demand, and widespread availability of financing have all helped drive U.S. car and truck sales beyond expectations earlier in the year,??? Fitch advises.  ???Should the combination of tax hikes and spending cuts come into force at year end, we believe it could lead to an unraveling of some of the factors that have clearly helped buoy the industry over the past couple of years.???

They warn that the massive tax hikes Democrats have doomed America to face, and which President Obama actually defended during the Wednesday presidential debate, ???would cause an immediate hit to a majority of American incomes, forcing consumers to practice spending restraint that would only be magnified when considering big-ticket items like cars and trucks.???

Auto sales are defying consumer-confidence gravity right now.  Another spike in unemployment could easily shatter that confidence.  Obama???s blithe assurances that America will flourish under higher taxes are poised to neutralize one of the few forces holding us from an outright recession.  And don???t forget that Obama has been busily imposing madcap fuel efficiency standards that will raise the price of automobiles by thousands of dollars over the coming years.

The approach of the new recession is playing out like a chess game: this statistic is being propped up by that force, which is about to be negated by this anti-growth government policy.  Checkmate approaches rapidly.