The slowdown in factory orders for durable goods is another warning sign that the economy may be slipping back into recession.
New orders for a range of long-lasting manufactured goods fell in June and a gauge of planned business spending plans dropped, pointing to a slowdown in factory activity.
Fears of tighter fiscal policy in early 2013 and a lingering debt crisis in Europe are dampening demand, causing a cooling in manufacturing activity. Factories have been the main pillar of support for the sluggish economic recovery.
The Commerce Department said on Thursday durable goods orders excluding transportation dropped 1.1 percent, the biggest decline since January, after rising 0.8 percent in May. Economists had forecast this category being flat last month.
Overall orders increased 1.6 percent as demand for aircraft surged, after an upwardly revised 1.6 percent increase the prior month.
Economists polled by Reuters had forecast orders for durable goods, items from toasters to aircraft that are meant to last at least three years, rising 0.4 percent after a previously reported 1.3 percent increase in May.
"The manufacturing sector is going through a weak patch with orders excluding transportation falling over the last three months. This is also the message of the sub-50 readings on the ISM manufacturing composite and new orders indexes for June," said John Ryding, chief economist at RDQ Economics in New York.
Details of the report were generally weak, with declines in new orders for computers, fabricated metal products, electrical equipment and appliances and machinery.
With factory orders backsliding it is going to be very hard to bring the unemployment rate down before the election. But that may be the least of our worries. Greece is going to run out of cash around August 20 and they are not sticking to the austerity plan they agree to when they begged for a bailout. Problems with Spain and their potential for default means that Europe may have to choose whether to allow Greece to slip away and go off the euro. They can't save both Greece and Spain and if it came down to a choice, Greece would lose.
If that happens, all bets are off with our economy and it is possible we would fall back into a recession.
A rising unemployment rate would doom Obama's re-election chances and make things very tough for whoever won in November.