Factory Orders Up 1.1%, Led by Gains in Transportation

Increased demand in the transportation sector helped boost factory orders 1.1% in October despite the shock from the stock market plunge, the government said Thursday.

The Commerce Department said orders for durable and non-durable manufactured products rose $2.2 billion over the September level to a seasonally adjusted $208.9 billion in October. In September, orders had risen 1.8%.

Most of the strength came in the transportation sector, which posted a 7.5% increase as demand for aircraft, autos and ships and tanks all showed gains. It was the first increase in transportation since May and the biggest monthly improvement since March.

“This shows us we had a strong economy going into the crash, but it doesn’t tell us much of anything about the post-crash environment,” said David Wyss, an economist with Data Resources Inc., a private forecasting firm.

Wyss predicted the overall economy would expand at a barely discernible 0.5% rate, as measured by the gross national product, in the first half of 1988. He said the pessimistic view was based on a belief that consumer spending is going to weaken considerably in the wake of the record drop in stock prices on Oct. 19.

Michael Evans, head of a Washington forecasting firm, was even more pessimistic, predicting an recession in the first half of next year. He said the increase in factory orders did not make him change that view because orders had lost much of their ability to foreshadow coming turns in the economy.

“In the last three recessions, new orders turned down the same month as the recession began,” he said. “This statistical series used to be a leading indicator but not any more.”

Analysts were also unimpressed with the big advance in transportation, saying it reflected in part orders for military airplanes, ships and tanks, equipment that the Pentagon delayed ordering until October and the start of a new federal budget year.

Transportation orders were $28.5 billion, with orders for aircraft rising 13.4% and military demand for ships and tanks posting a 17-fold increase. Without the increase in transportation, total orders would have risen only 0.1%.

Total defense orders climbed 8.1% to $9.8 billion in October.

Orders for durable goods, items expected to last three or more years, rose 1.4% in October. This represented a substantial revision from an advance report last week that had put the increase at just 0.3%.

Orders for non-durable goods were up 0.7% in Octover to $98.1 billion.