Factory orders fall on sharp decline in aircraft

WASHINGTON - Orders to U.S. factories fell in August, mostly because of a sharp drop in volatile aircraft orders. The decline offset an increase in orders that reflect corporate investment plans.

The Commerce Department said Thursday that factory orders fell 5.2 percent in August, the biggest drop in more than three years. The decline was largely because demand for commercial aircraft plunged 102 percent. That pulled down orders for long-lasting manufactured goods by 13.2 percent.

In one positive sign, orders for business equipment and software, often considered a proxy for investment plans, rose 1.1 percent, after two steep declines.

The value of orders for non-durable goods, which include food, clothing, and gas, rose 2.2 percent, mostly because gas prices were higher.

The manufacturing sector is sending mixed signals. The weak factory goods report suggests businesses are getting more cautious.

But a survey of purchasing managers released Monday showed that manufacturing activity expanded in September after three months of declines. Factories received more new orders in September and also increased hiring. That indicates that factory activity may recover after a summer slowdown.

And auto sales jumped last month to nearly 1.2 million, an increase of 13 percent compared to a year earlier. That's a sign consumers are still willing to spend on expensive goods, even as job growth remains weak.

Still, U.S. manufacturers face several challenges ahead. Europe's financial crisis has pushed six of the 17 countries that use the euro into recession, a development that threatens exports of U.S. goods. And economies in other parts of the world, including big U.S. export markets such as China, India and Brazil, are also seeing their growth slow.

Many business leaders are concerned about the "fiscal cliff," a package of steep tax increases and sharp spending cuts scheduled to kick in at the beginning of next year. The Congressional Budget Office and many private economists say that if a deal isn't reached to postpone the changes, the economy could fall back into recession.

The economy expanded at an annual rate of only 1.3 percent in the April-June quarter, down from 2 percent at the beginning of the year. That's not fast enough to encourage much hiring. Economists expect growth will remain at about 2 percent for the rest of the year.