US factory orders post record drop; orders, inventories shrinking

New orders for US-made goods suffered a record decline in March and could sink further as disruptions from the novel coronavirus fracture supply chains and depress exports.

The report from the Commerce Department on Monday was the latest in a series of increasingly bleak economic data. It also bolstered analysts' views that the economy would struggle to rebound even as parts of the country start to reopen after nationwide lockdowns to slow the spread of COVID-19, the respiratory illness caused by the virus.

Factory orders dropped 10.3%, the largest decrease since the series started in 1992, after dipping 0.1% in February. Economists polled by Reuters had forecast factory orders would tumble 9.7% in March.

Factory orders decreased 2.8% year-on-year in March. Manufacturing, which accounts for 11% of US economic activity, is, together with the rest of the economy, reeling from nationwide lockdowns to slow the spread of COVID-19.

The Institute for Supply Management (ISM) reported on Friday that its measure of national factory activity dropped to an 11-month low in April. The ISM's forward-looking new orders sub-index plumbed to levels last seen in December 2008.

Manufacturing was already under pressure from the Trump administration's trade war with China. Manufacturing output declined in the first quarter at its sharpest pace in 11 years. Business investment has contracted for four straight quarters.

The longest economic expansion in US history ended in the first quarter, with gross domestic product declining at a 4.8% annualized rate, its steepest pace since the 2007-2009 Great Recession.

Monday's report showed unfilled orders at factories dropping 2.0% in March after nudging up 0.1% in the prior month. Inventories at factories fell 0.8% in March after declining 0.4% in February. Shipments of manufactured goods decreased 5.2% in March after slipping 0.3% in the prior month.

Economists said the continued drawdown of factory inventories suggested a much sharper pace of stock depletion relative to what the government assumed in its advance GDP estimate of the first quarter that was published last week.

The government estimated that business inventories fell at a $16.3 billion rate in the January-March quarter after increasing at a $13.1 billion pace in the fourth quarter.