Financial thoughts

Orders to U.S. factories fell in August by the most in almost two years, signaling that business spending slowed down even before the recent worsening of the credit crunch.

The 4 percent drop in bookings was larger than forecast and followed a 0.7 percent increase in July that was smaller than previously estimated, Commerce Department figures showed today in Washington. The Labor Department said first-time applications for jobless benefits rose to a seven-year high.

The downturn in business spending may deepen as the credit crisis hurts companies' ability to borrow; investors in the past week demanded the highest yields in eight years to buy U.S. investment-grade corporate bonds. International Monetary Fund economists today downgraded their assessment of the U.S. economy, seeing a “substantial likelihood of a sharp downturn.''

“The economy is really sitting on the precipice,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. “The benefit from exports looks as if it may be shrinking.''

Exports, which had made up for a slowdown in U.S. sales, are likely to weaken in coming months as growth in Europe and Japan also falters.

U.S. stocks slid and Treasuries climbed for a second day. The Standard & Poor's 500 Index dropped 2.9 percent to 1127.79 at 11:23 a.m. in New York. Yields on benchmark 10-year notes fell to 3.66 percent from 3.74 percent late yesterday.

Economists' Forecasts

Economists forecast factory orders for August would drop 3 percent after a previously reported 1.3 percent gain in July, according to the median of 59 forecasts in a Bloomberg News survey.

The number of people collecting jobless benefits rose to 3.59 million in the week ended Sept. 20, the most since 2003, the Labor Department reported today. First-time claims jumped to 497,000 in the week ended Sept. 27, reflecting job losses in the aftermath of the Gulf Coast hurricanes.

A private report yesterday indicated the manufacturing slump worsened last month. The Institute for Supply Management said its index fell to the lowest level since the 2001 recession. Orders, production and employment all dropped and exports rose at the slowest pace in two years (no fax payday loans) cash til payday loan.

“I just can't imagine that we'll see a lot of strength in the index in the next few months,'' Norbert Ore, chairman of the ISM survey, said yesterday in a conference call from Atlanta. “Manufacturing has weathered this downturn in the economy quite well, to this point.''

Yields Soar

The crisis that brought the bankruptcy, government takeover or forced merger of seven major financial companies last month is making it more expensive for companies to borrow. Yields on investment-grade U.S. corporate bonds reached as high as 7.85 percent last week, the highest level since November, 2000, according to Merrill Lynch & Co. data.

Excluding demand for transportation equipment, which tends to be volatile, factory orders decreased 3.3 percent, the most since September 2001 when terrorists attacked the World Trade Center and the Pentagon.

Bookings for all durable goods, which make up just under half of total orders, fell 4.8 percent in August, more than the Commerce Department estimated last week. Non-durable goods orders, including those for food, petroleum and chemicals, dropped 3.3 percent after.

Today's revision also made the outlook for business investment even dimmer. Bookings for capital goods excluding defense and aircraft, a proxy for future business spending, fell 2.4 percent in August compared with the 2 percent decline estimated last week.

Hit to GDP

Shipments of such goods, which the government uses to calculate gross domestic product, decreased 2.1 percent, also worse than previously estimated and the biggest drop since January 2007.

The slowdown in factory orders is forcing some companies to trim payrolls. Rockwell Automation Inc., the world's largest maker of factory automation products, said this week it will cut about 3 percent of its 20,000-member workforce immediately to reduce costs.

Keith Nosbusch, chief executive officer of the Milwaukee- based company, said in July that slower demand hurt profit for the quarter ended June 30.

Source