The latest report from the Department of Commerce revealed that factory orders in American factories dropped by 0.4 percent in December. This is the largest month-to-month drop since April 2020. Initial forecasts by economic analysts believed factory orders would only drop by 0.2 percent.
New data from the Commerce Department has also shown that factory orders for American-made goods fell twice as much as expected in January. (Related: US companies relying on American-made products and raw materials are THRIVING during supply chain crisis.)
Factory orders were rising for seven straight months, including a revised 1.8 percent gain in Nov. 2021.
Orders for durable goods, or products that are not meant for immediate consumption, fell by 0.7 percent. Orders for non-durable goods fell by 0.2 percent. Orders for nondefense capital goods – ranging from small arms to large machinery and equipment such as construction machinery, turbines and generators – fell by 0.2 percent.
Responding to the Commerce Department’s recent report, American stocks plummeted. The Dow Jones Industrial Average fell by 1.45 percent, and the S&P 500 Index fell by 2.44 percent.
America losing billions of dollars due to decrease in new orders
Last month, the United States made $530.7 billion from new orders for manufactured goods. The 0.4 percent drop might not look like a lot, but keep in mind that the American manufacturing industry accounts for nearly 12 percent of the entire economy. Even a drop of less than half of a percentage means the country is losing out on billions of dollars worth of revenue that could have gone to businesses and their employees.
Economists studying the drop in new orders for American-made goods believe that it is caused at least partially by inflation and by businesses still dealing with inventory shortages. This analysis is supported by the Commerce Department’s data for unfilled orders.
Unfilled orders for December rose by 0.5 percent to reach a whopping $1.27 trillion worth of unfulfilled purchases. Last month, unfilled orders rose by 0.8 percent. This is the eleventh consecutive month that the index for unfilled orders for American-made manufactured goods rose.
Adjusted for inflation, inventories in American factories remain well before their pre-pandemic levels. Sales-to-inventory ratios also remain low.
The decrease came even though orders for some American-made goods increased in December, such as for machinery, primary metals and fabricated metal products.
Any increases were offset by massive decreases in demand for American-made electronic products like computers as well as transportation equipment.
American manufacturing will continue suffering if computer chip shortage not addressed
America’s supply of semiconductor chips determines the health of many parts of the manufacturing industry, especially for factories that primarily build electronic equipment and other appliances and products that rely on computer chips.
In another Commerce Department report, it warned that the U.S. supply of chips has fallen to alarmingly low levels, raising the prospect of dozens, possibly hundreds of factories all over America shutting down.
In 2019, right before the Wuhan coronavirus (COVID-19) pandemic, a survey of 150 companies in the U.S. found that they had 40 days supply of semiconductors. Now, these same companies are down to less than five days of inventory. This problem is compounded by the fact that demand for semiconductor chips has grown by 17 percent from 2019.
Semiconductor chip shortages have already disrupted many parts of the manufacturing industry, notably the production of automobiles. The slowdown in production has contributed significantly to the over seven percent year-over-year increase in the price of automobiles last month – the largest inflationary period for the industry in four decades.
Instead of attempting to resolve this problem on its own, the administration of President Joe Biden has passed this concern on to Congress, citing the need to prioritize stalled legislation that would supposedly solve the crisis by providing $52 billion for domestic semiconductor production.
“The semiconductor supply chain remains fragile, and it is essential that Congress pass chips funding as soon as possible,” said Commerce Secretary Gina Raimondo in a statement. “With skyrocketing demand and full utilization of existing manufacturing facilities, it’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities.”
Even if Congress passed the bill immediately and provided factories with a $52 billion stimulus for the production of semiconductor chips, it would take years before factories dedicated to producing chips begin production. This begs the question of whether the American economy can wait that long before this crisis is resolved.
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Watch this Jan. 24 episode of the “Thrive Time Show” with host Clay Clark as he talks about how the massive inflation caused by Biden’s economic policies herald the coming collapse of the American dollar.
The “Thrive Time Show” with Clay Clark airs from Monday to Friday at 3:30-4 p.m. on Brighteon.TV.
Learn more about the state of the American economy by reading the latest articles at MarketCrash.news.