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Wednesday, 3 August 2011

UPDATE: US Factory Orders In June Drop For Second Time In 3 Months

(Adding non-manufacturing ISM number, ADP data; inserting analyst comment)

--Factory goods orders fall in June by 0.8% from previous month

--Gauge of capital spending increases modestly

--Report underscores weakness of overall economy

By Jeff Bater and Tom Barkley


WASHINGTON -(Dow Jones)- Orders for U.S. factory goods fell in June for the second time in three months, a sign the anemic economy is causing strains among manufacturers.

Orders for manufactured goods decreased by 0.8% from the prior month to $ 440.69 billion, the Commerce Department said Wednesday.

Aside from the drop in factory orders, an important reading on the nation's service sector fell to its lowest since February 2010. The Institute for Supply Management said Wednesday its non-manufacturing purchasing managers' index slipped to 52.7 in July from 53.3 in June.

Payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers said private-sector payrolls increased in July, but their somewhat upbeat report didn't show a jobs gain considered robust or particularly healthy.

Despite a deal in Washington to raise the government debt ceiling and avoid default, stock market prices Wednesday were down, reflecting deepening worry about the overall economy.

"Good economic reports have been few and far between and the slowdown is real, " said Joel Naroff, who runs Naroff Economic Advisors in Holland, Pa. "I don't expect a double-dip, but this economy doesn't need any more speed bumps put in the road."

Overall economic growth was soft in the first half of 2011, as consumers pulled back sharply on their spending. Unemployment in the U.S. is high, and elevated gasoline prices mean consumers have to fork over more of their incomes, which aren't rising much.

The decline in factory orders during June follows a 0.6% increase in May and a drop of 0.9% during April. Economists surveyed by Dow Jones Newswires had forecast a 1.0% drop in overall factory orders in June.

Capital investment on equipment by U.S. businesses rose mildly. A barometer of business spending within the data, non-defense capital goods orders excluding aircraft, increased by 0.4%.

Manufacturing has been a strong part of the economy as it recovers from the recession. But factories have been feeling stress from a slowing economy.

Last week, the government reported orders for long-lasting goods tumbled a second time in three months during June. On Wednesday, the Commerce Department, in its factory report, revised the durable-goods orders drop, to 1.9% from the previously estimated 2.1%.

A report this week suggested manufacturing slowed sharply in July. The ISM's manufacturing index fell to 50.9 from 55.3 in June. The new reading wasn't much above 50, the minimum level that indicates expanding activity in the goods- making sector. Readings below 50 suggest contraction.

-By Jeff Bater, Dow Jones Newswires; 202-862-9249, jeff.bater@dowjones.com

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