Factory Orders Off 1.1% in October : Steep Drop in Demand for Defense Equipment Noted

Orders to U.S. factories, hit by a steep drop in demand for defense equipment, fell 1.1% in October--the third decline in the past four months, the Commerce Department reported Wednesday.

The department said orders fell by $2.2 billion to an October total of $195.1 billion. They had dropped 0.7% in September and 1.2% in July. In August, orders rose 1.5%.

The October setback was concentrated in the defense category, which fell 26.3% following a 21.1% decline in September. Defense orders had risen 7% in August.

Analysts discounted the big back-to-back declines in defense, saying that the continued Reagan Administration military buildup would send orders up in coming months.

Still, factory orders for the first 10 months of this year have shown only a 2.1% gain over the same period last year. This is far below the 10.6% increase in orders turned in during 1984.

U.S. manufacturers have been hobbled by stiff foreign competition that has forced widespread plant shutdowns and layoffs. Since January, 270,000 U.S. manufacturing jobs have been lost.

Michael Evans, head of Evans Economics, a Washington forecasting firm, predicted better days ahead.

“I think we have hit bottom and will see a substantial pickup in orders in the next few months,” Evans said. “I think that increasing profits, the decline in interest rates and the decline in the dollar will cause businesses to be more optimistic about growth in 1986.”

Evans predicted that the overall economy will grow at a robust 5% rate in the first half of 1986, far above the weak 2% growth that the country has seen most of this year.

John Albertine, president of the American Business Conference, a coalition of high-growth companies, said that he looked for growth to be below 3.5% in the first half of the year because of the record-high levels of debt being carried by consumers.

But he said declines in interest rates and the dollar plus the need for businesses to replenish inventories should help keep the economy growing at a moderate pace without a recession in 1986.

In addition to the big drop in defense orders in October, orders for non-defense capital goods fell 7.1%, erasing a 6.1% increase in the month before. This category is closely watched for signals that it gives of industry plans to expand and modernize production facilities.

The Reagan Administration, which is counting on a pickup in business investment to provide momentum for economic growth in coming months, is forecasting 4% average growth next year.

Orders for durable goods--items expected to last three or more years--fell 2.1% in October. This was the same percentage change as was reported in an advance report two weeks ago.

By category, orders for transportation fell 6.3%, the second consecutive monthly decline, while orders for electrical machinery were down 5.7%. The only category showing any strength was primary metals, where orders rose 5.1%. Orders for non-durable goods remained unchanged at $90.7 billion in October following a 0.5% decline in September.

Shipments of manufactured goods increased 1.7% to $197.5 billion in October, the largest increase since a 2.7% rise in December, 1983.