Factory

U.S. factory orders fell sharply in April for the second time in three months and economists expect “further bumps” ahead for the manufacturing sector amid rising trade tensions.

The Commerce Department said factory goods orders declined 0.8% month to month, reflecting softening demand for transportation equipment, computers and electronic orders, and primary metals. Orders increased 1.3% in March and economists had predicted a 0.9% drop in April.

Orders for durable goods dipped 2.1% while orders for non-defense capital goods excluding aircraft, a measure of business spending plans on equipment, fell 1.0%

Shipments of manufactured goods declined 0.5%, the largest drop since April 2017, after rising 0.2% in March. As a further indication of softness in manufacturing, inventories at factories rose 0.3% in April. The stock of unsold goods has increased in seven of the last eight months.

The report indicates “continuing weakness in manufacturing activity that could hurt the broader economy,” Reuters said, noting that economic growth appears to be slowing sharply after a temporary boost from trade, inventories, and defense spending in the first quarter.

As MarketWatch reports, “Manufacturers have curbed production because of weaker exports, slower demand at home, and uncertainty caused by trade fights with China and other countries. The industry isn’t big enough anymore to plunge the U.S. into recession all by itself, but a prolonged drag makes the economy more susceptible to a downturn.”

President Donald Trump’s threat to impose a 5% tariff on goods from Mexico could result in further disruptions to the supply chain, economists warn.

“We expect further bumps along the road for manufacturing as a slowing global economy and escalating tariffs on major U.S. trading partners pose headwinds,” said Stephen Ciccarella, a senior economist at Moody’s Analytics.

“The supply chains with the U.S. and Mexico are more intertwined than those between the U.S. and China, which would make the spillover effects on the U.S. economy more significant than the 5% tariff would otherwise suggest,” he added.

Factory orders last month were hit by 0.5% drop in orders for computers and electronic products while those for primary metals dropped 1.1%.

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