Ahead of the Bell: US factory orders

US factory orders expected to show big drop in August due to slump in airplane orders

Associated Press
US factory orders posted record drop in August
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In this Sept. 17, 2014 photo, workers at the Dusky Marine factory in Dania Beach, Fla., begin to assemble one of the custom boats they built at the family owned business. Each year the company makes 50-100 fishing boats. The Commerce Department releases factory orders for August on Thursday, Oct. 2, 2014. (AP Photo/J Pat Carter)

WASHINGTON (AP) -- The Commerce Department reports on U.S. factory orders for August. The report will be released Thursday at 10 a.m. Eastern.

ORDERS DROP: The expectation is that factory orders plunged a sharp 9.3 percent in August, according to a survey of economists by FactSet.

MANUFACTURING STRENGTH: In July, factory orders rose 10.5 percent, the biggest one-month increase on record going back to 1992. Manufacturing has been a source of strength this year for the U.S. economy.

The big gain in orders in July and the expected big drop in August reflect a huge swing in demand for commercial aircraft, an extremely volatile sector.

A key orders category that serves as a proxy for business spending posted a modest gain which offered hope that manufacturing will continue to be a source of strength in coming months. Economists expect businesses to boost spending as they expand and modernize their operations.

The Institute for Supply Management's closely watched barometer of manufacturing performance fell to 56.6 in September, from 59 in August. Analysts saw the slowdown as consistent with a recent drop off in global demand and a rise in the value of the dollar, which makes American goods more expensive overseas.

Still, many economists believe manufacturing has enough momentum to keep the economy growing at a healthy rate above 3 percent in the second half of this year.

The economy has been on a roller coaster so far this year. The economy contracted at an annual rate of 2.1 percent in the first quarter with activity held back by the harsh winter. Then pent-up demand by consumers and businesses drove growth to a rapid rate of 4.6 percent in the April-June quarter.

Many economists are looking for growth to be more uniform in the second half of the year, forecasting a rate above 3 percent. That would be a marked improvement from the sub-par rates closer to 2 percent that were seen during the first five years after the recession.

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