Factory Orders Fall More Than Expected Amid Coronavirus Stress

New orders for U.S.-made goods fell more than expected in January and could drop further as a worldwide coronavirus outbreak strains supply chains and undercuts the manufacturing sector, which had recently shown signs of stabilizing after a prolonged slump.

Factory goods orders decreased 0.5% as an increase in demand for machinery was offset by a decline in transportation equipment, the Commerce Department said on Thursday. Data for December was revised slightly up to show orders rising 1.9% instead of rebounding 1.8% as previously reported.

Economists polled by Reuters had forecast factory orders would drop 0.1% in January.

Factory orders were unchanged on a year-on-year basis in January. Shipments of manufactured goods fell 0.5% in January and inventories dipped 0.1%.

Manufacturing, which accounts for 11% of the U.S. economy, had been stabilizing as trade tensions between the United States and China eased, leading to a pickup in business sentiment. But that has been disrupted by the rapidly spreading coronavirus.

The virus, which causes a flu-like illness, has killed more than 3,000 people and sickened at least 90,000, mostly in China.

In the United States, 11 people have died from the disease and the number of infections has exceeded 100. China is a major supplier of inputs used at most factories in the United States.

In addition to supply chain disruptions, economists also expect exports will suffer. The coronavirus is also expected to hurt the transportation and tourism industries as companies scrap travel and consumers stay at home.

U.S. economic growth in the first half of the year is forecast around 1.0%. The economy grew 2.3% in 2019. A survey on Monday from the Institute for Supply Management showed factory activity stalled in February.

Transportation equipment orders fell 2.1% in January after rebounding 8.8% in the prior month. Orders were held down by a 19.6% drop in demand for defense aircraft and parts. There were also decreases in orders for ships and boats. That offset a 346.2% surge in orders for civilian aircraft and parts. Motor vehicle and parts orders rose 2.7% in January.

Machinery orders rose 2.1% in January after dropping 1.7% in December. Orders for electrical equipment, appliances and components orders fell 1.1% in January.

The government also said orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, rose 1.1% in January as reported last month.

Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 1.0% in January, rather than jumping 1.1% as previously reported.