The demand for U.S capital goods such communications gear and machinery has dropped to its lowest in July in comparison to figures in the past eight months – a sign that indicates that the contribution of manufacturing to the economic expansion is anything but substantial.

Citing reasons for this drop in demand, Millan Mulraine, a senior U.S strategist at New York’s TD Securities says, “There’s uncertainty domestically about the tax environment, and there’s uncertainty globally about the outcome of the European crisis. This would bolster the case for the Fed, suggesting that the soft underbelly of the recovery may be extending into the third quarter.”

Analysts say that tax increases and spending cuts are making companies and individuals nervous coupled with the global slowdown that threatens overseas sales of companies such as Deere & Co. and Caterpillar Inc. (CAT).

With Federal Reserve policy-makers signaling that they would take steps to ensure recovery despite slow or no growth, stocks began to climb, reducing the first weekly decline at the Standard and Poor’s 500 Index. There was much speculation that this observed drop in orders would then lead to the aforementioned steps taken by the Federal Reserve to provide additional stimulus.

As mentioned earlier, most companies are holding back orders in waiting for the end of year ‘fiscal cliff’ deadline, and which amounts to $ 600 billion in reduction and taxes in defense among other government programs.

Not requiring any action from lawmakers, this ‘fiscal cliff’ deadline will take effect next year and threatens to push the U.S economy into another recession.