Factory Records
Manufacturers experienced a sharp reduction in orders in February as, for the 2nd month, business spending unexpectedly slipped.
In an environment quickly sliding to recession and the sub-prime mortage housing crisis, industry is wary of investing any capital in durable goods, and remains hesitant, as orders were down 1.7% in February, after a January drop of 4.7%.
Sales of manufacturing machinery were down 13.3%, the largest drop of any sector and a record, indicating that factories are preparing for a downturn, despite an initial belief by many economists that they would weather some of the difficulties of a recession on the basis of exports.
The effect on the market was swift – sending all the major indexes down at opening time, the Nasdaq off less than 1%, and the Dow Jones Index falling 80 points. Joseph Burseulas, the chief economist for the United States at research firm IdeaGlobal, wrote to clients recently that “the data strongly suggests that the period of retrenchment in the manufacturing sector is likely to get far worse before things stabilize.”
Let's Play House
In another closely related sector, new home sales fell their lowest rate in 13 years, a result of the tightening of lending restrictions, as well as a belief by consumers that even lower prices are on the horizon as the recession worsens.
The Commerce Department revealed that sales dropped 1.8% last month, down 30% from a year earlier, with a median price decrease of 2.7% from last year at the same time.
The third annual decline in housing sales has led to builders holding back on construction to limit inventories, and also effects other economic sectors, as businesses and individuals face tightened credit restrictions.
With declining sales and a growing inventory, prices are dropping as owners attempt to unload empty homes onto an unreceptive market. The price of an average home fell to $244,110 from $250,800, a drop of over $6,000 in the space of one month.
2008 Outlook
With all of these factors included, it appears as if there’s no end in sight to the recession. “The direction is still down,” said Anirvan Banerji, Economic Cycle Research Institute director. “We are now in a recession. We are unfortunately past the tipping point, and that means we have further to go in terms of housing downside.”
“Businesses are reluctant to invest because they still have no clue about how the economy is going to shake out over the next 6 to 12 months,” managing director Bernard Baumhold, of forecasting firm the Economic Outlook Group, said recently.
