Factory Orders Make a Sharp Turnaround, Jump 3.1% in August

Orders to U.S. factories for manufactured goods surged 3.1% in August, the government said Monday in a report cited as more evidence that the economy continues to grow at a robust pace.

The Commerce Department said orders rose $6.8 billion to a seasonally adjusted $226.6 billion, rebounding from a 3.6% decline in July, the worst in 18 months. Orders were up 5.4% in June, the biggest jump in 17 years.

The overall orders number has been influenced in recent months by wide swings in orders for transportation equipment, particularly aircraft.

But analysts said the underlying trend is strong and indicates that a jump in the unemployment rate from 5.4% in July to 5.6% in August may be an aberration.

“There has been some question in the (financial) markets as to whether manufacturing is stalling out. . . . But with the orders situation as strong as it is, it’s clear to us manufacturing remains on a solid track,” said Stephen S. Roach, an economist with Morgan Stanley & Co. “I think the economy as a whole is continuing to display very good momentum.”

Total orders for the first eight months of the year have averaged $217.7 billion a month, 7.8% higher than a year ago.

Manufacturers Optimistic

Jerry Jasinowski, chief economist of the National Assn. of Manufacturers, said members of his trade group remain optimistic, at least through the rest of 1988.

“Manufacturers, in general, don’t see any slowdown in their orders over the next three to four months,” he said.

In another report, the Commerce Department said construction spending in August fell 0.6% to a seasonally adjusted annual rate of $396.1 billion. Economists say rising interest rates and high vacancy rates for many kinds of buildings have kept this sector sluggish.

Manufacturing has been one of the most vigorous areas of the economy this year because export sales have boomed with the lower value of the dollar, which makes U.S. goods more affordable on overseas markets.

To meet demand for exports, manufacturers have stepped up spending on new machinery to modernize their factories.

Roach said that before this year manufacturers had been expanding capacity at the slowest rate since World War II and now that they’re finally spending more they’re unlikely to taper off before considerable pent-up demand is met.

‘Extraordinary Rise’

Orders for non-defense capital goods rose 6.3% in August to $38.5 billion after rising 2.1% in July and 12.5% in June.

“That’s an extraordinary rise,” Roach said.

Orders for durable goods, “big-ticket” items expected to last three or more years, jumped 5.9% after a 7.4% fall in July and an 8.7% increase in June.

Excluding the volatile defense goods category, orders rose 2.7% in August after a 0.6% decline a month earlier and a 2.9% rise in June.

Orders for transportation equipment, a sub-category of durable goods, were up 19% after a drop of 22.5% in June and a 33.3% jump in June.

Primary Metals Fall

The department said the August gain in transportation to $34.8 billion, which included a 167.1% rise in orders for military ships and tanks, was led by a 14.4% gain in aircraft and a 17% jump in motor vehicles and parts.

In other categories, orders for primary metals including steel fell 1.8% and electrical machinery was off a scant 0.1% after a big increase in July. Other machinery orders rose 6.3%.

Orders for non-durable goods were off a slight 0.1% to $103.6 billion. Increases in rubber and plastics, paper and tobacco offset declines in chemicals, petroleum, textiles and clothing.

Shipments of manufactured goods rose 2.1% in August after a 1% decline in July.