US Factory Orders Suffer Biggest Drop in 3.5 Years in Warning Sign for Economy

Workers assemble cars at Ford's Assembly Plant in Chicago, Ill., on June 24, 2019. Jim Young/AFP via Getty Images

New orders for American-made goods have suffered the sharpest drop in three-and-a-half years, with the latest sign of a slump in U.S. manufacturing adding to fears of a coming recession.

According to the latest month of available data from the Commerce Department’s Census Bureau, factory orders fell 3.6 percent in October.

The decline is the sharpest monthly drop since April 2020, when pandemic lockdowns rattled the economy and threw it into a recessionary tailspin.

The Commerce Department report also showed that new orders for manufactured durable goods fell 5.4 percent after a 4.0 percent rise in September.

The disappointing factory numbers come hot on the heels of other data suggesting that America’s manufacturing sector is mired in weakness and the economy is heading for a slowdown.

Economy Hitting ‘Stall Speed’

The closely-watched Institute for Supply Management’s (ISM) Manufacturing PMI shows that U.S. manufacturing activity contracted in November for the 13th consecutive month, as demand softened and new orders fell.

The 13-month-long U.S. manufacturing decline is the longest down streak since the 2008-09 financial crisis. The manufacturing sector accounts for roughly 11 percent of the U.S. economy.

Even though the U.S. economy has defied predictions for a recession, recent economic data (in addition to the manufacturing slump) paint a picture of a looming slowdown, including lackluster growth in consumer spending and a cooling job market.

Economist David Rosenberg said in a post on X that the signs point to the U.S. economy flatlining.

Mr. Rosenberg pointed out that the Federal Reserve’s real-time estimate of economic growth for the current quarter has dropped from 2.1 percent on Nov. 22, to 1.8 percent on Nov. 30, and then 1.2 percent on Dec. 4.

“That is the freshly-minted Atlanta Fed Nowcast estimate for Q4 real GDP growth,” he wrote. “In two words or less: stall speed.”

Recession ‘In the Near Term’

Last week, data showed that consumer spending, which accounts for over two-thirds of U.S. economic growth, grew by a tepid 0.2 percent in October after a 0.7 percent gain in September.

A separate report from the Labor Department showed that initial claims for state unemployment benefits rose by 7,000 to 218,000 for the week ending Nov. 25, while the number of people receiving benefits after an initial week of aid (a proxy for hiring) rose to 1.927 million—the highest since November 2021.

Further, a key U.S. leading economic indicator from The Conference Board dropped for the 19th consecutive month in October, the latest month of available data. The indicator is made up of 10 individual indicators and serves as a forward-looking gauge for the economy.

“Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower ISM® Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline,” Justyna Zabinska-La Monica, business cycle indicators senior manager at the Conference Board, said in a statement.

She added that the October decline signals a recession “in the near term.”

“The Conference Board expects elevated inflation, high interest rates, and contracting consumer spending—due to depleting pandemic saving and mandatory student loan repayments—to tip the US economy into a very short recession,” she added, with the Conference Board predicting that the U.S. economy will grow in 2024 by a paltry 0.8 percent.

The latest data show that the U.S. economy grew at a 5.2 percent annualized rate in the third quarter, a forecast-beating pace that some analysts said looks better on paper than in reality because, when looked at from the income side, the data suggest that momentum has waned and growth is slowing.

Although gross domestic product (GDP) grew by 5.2 percent, gross domestic income (GDI) grew at a paltry 1.5 percent in the prior quarter.

“The numbers should match and do correlate over time. But the difference between the measures is stunning,” analyst Mike Shedlock wrote in a blog post, referring to the difference between GDP and GDI.

“The key takeaway from this release is the economy likely is not humming the way media and [President Joe] Biden present.”

‘Dangerous and Inflationary’

Recent data from October show that while 69 percent of U.S. consumers expect a recession over the next 12 months, a whopping 84 percent of C-suite executives believe a contraction will materialize.

One executive to sound the alarm is JPMorgan CEO Jamie Dimon, who warned recently that inflation could accelerate again and a recession could well follow.

“A lot of things out there are dangerous and inflationary. Be prepared,” he said at the 2023 New York Times DealBook Summit in New York on Nov. 29.

Mr. Dimon said geopolitical tensions and the energy transition were prompting governments to ramp up spending, which is inflationary. If a new inflationary spike were to materialize, this would pressure the Federal Reserve to raise interest rates further, which could tip the economy into a downturn.

“Interest rates may go up, and that might lead to recession,” he warned.

On the consumer side, as the excess savings accumulated during the pandemic have been increasingly depleted, there’s been a significant rise in the number of Americans pulling money out of their 401(k) accounts to pay bills and buy necessities.

A recent report from Fidelity, the nation’s largest provider of 401(k) plans, revealed a troubling trend in the form of Americans increasingly tapping their retirement savings in the form of hardship withdrawals.

The report shows that 2.3 percent of U.S. retirement plan participants took a hardship withdrawal in the third quarter of 2023, up from 1.8 percent in the third quarter of 2022.

Avoiding foreclosure or eviction and covering medical expenses were two of the top reasons given for making a hardship withdrawal.