WASHINGTON — There’s no need to explain to Al Lubrano how deeply tight credit has wounded the economy.
Lubrano, president of a metal components maker in Lincoln, R.I., said orders from his customers in the automotive, computer and telecommunications industries have “dropped precipitously” in the past six weeks.
“I’m going to have to lay people off,” he said, if the economy doesn’t improve.
The government reported Thursday that factory orders took the biggest drop in two years in August as businesses cut back on purchases of large equipment and consumers spent less on goods.
When manufacturing takes a hit, jobs get pummeled. More people than expected lined up at the unemployment lines last week, according to government data released Thursday, pushing claims for jobless benefits to a seven-year high.
There’s more pain to come, predicted Lubrano, if the House doesn’t pass a $700 billion plan to buy bad assets from banks and other institutions to shore up the financial industry and eventually thaw frozen lending.
“You’re going to see jobless rates shoot up like you haven’t seen in years” if the package doesn’t pass, said Lubrano. His company, Technical Materials Inc., has about 200 employees and is already planning to reduce its workers’ hours over the holidays.
The Commerce Department said Thursday that factory orders in August plunged by 4 percent compared with July, a much steeper decline than the 2.5 percent drop analysts expected and the biggest setback since a 4.8 percent plunge in October 2006.
The weakness was led by big declines in orders for aircraft, down 38.1 percent, and autos, which fell by 10.6 percent, the worst performance in nearly six years.
Orders for nondefense capital goods excluding aircraft, considered a good barometer of business investment plans, fell by 2.4 percent, the biggest setback in this category in 19 months. It’s an indication that businesses are slashing their investment plans in the weak economy, and growing credit strains are making it hard for companies to get loans to expand and modernize.
Large manufacturers have started to see their customers pull back “just in the past few weeks” because of difficulties with credit, said Daniel Meckstroth, chief economist at MAPI/Manufacturers Alliance, a research group.
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