Factory Orders Turn Higher During Month
Factory orders rebounded by 0.4% in June after a sharp 2.6% fall in May, the Commerce Department said Wednesday, showing that the economy is struggling to extend its seven-year expansion.
And in another favorable report, the department said sales of new single-family homes rose by 5.5% in June to their highest level since January, with sales in the West jumping more than 20%.
The nation’s factories boosted orders for machines, electrical equipment and fabricated metals but cut back on orders for raw metals, such as steel and aluminum, and auto equipment during the month, the department said.
The $993-million increase from May’s level left factory orders--the lifeline of industrial growth--at a seasonally adjusted $234.56 billion in June.
The June rebound showed that the industrial slowdown under way has taken a pause, economists said, allowing growth to inch forward in the overall economy.
“I think all the data we’ve seen is consistent with a fairly pervasive slowdown in the manufacturing sector, but it does not indicate an impending recession,” said economist Norman Robertson at Pittsburgh’s Mellon Bank.
The closely watched purchasing managers index, which was released Tuesday, showed the industrial sector contracting for the third month in a row.
Many economists are now convinced that the manufacturing economy is entering a mild recession, but they also say robust demand for services has prevented the weakness from spreading throughout the economy.
A Fine Balance
“We seem to be having a soft landing,” said economist Mike Penzer at Bank of America in San Francisco. “There’s no recession yet.”
A soft landing refers to the slowing of the economy and inflation without pushing the economy into a recession.
Coupled with last week’s report of an increase in existing home sales, Wednesday’s housing report “is another little bit of evidence the housing market is picking up,” said economist Richard Peach of the Mortgage Bankers Assn.
Home sales were boosted in June by a sharp 23.4% increase in the West, after a 2.7% rise in that part of the country in May.
“A lot of it was provoked by a strong movement into California before land-use controls came into effect,” said Dave Seiders, chief economist of the National Assn. of Home Builders. “It’s hard for me to believe that level of activity in the West can be sustained,” he added.
The nationwide June rise, which followed a revised 4.3% gain in May, lifted home sales to a seasonally adjusted annual rate of 670,000 units, the Commerce Department said. It was the highest rate since January, when sales reached an annual rate of 700,000.
However, high prices continued to take their toll on Northeast sales, which plunged 18.2%.
Prices Advance
The slack in the Northeast housing market follows a very strong period of activity in 1986, 1987 and 1988, Seiders said. “The economy’s still solid there, but I think the biggest problem in the Northeast is affordability.”
Home sales in the South and Midwest rose by 1.9% and 3.1%, respectively.
The average price of a home in the United States rose to $159,100 in June from $146,800 in May and $136,500 in June, 1988.
Compared to a year ago, however, home sales were down 6.4% from 716,000 units in June, 1988.
The markets shrugged off the economic news, which was in line with expectations. Traders are now awaiting the important employment report on Friday to see whether job growth is slowing enough to prompt another round of interest rate cuts by the Federal Reserve Board.
The Fed recently eased credit to stimulate growth, and the first signs of a rebound have shown up in the housing market, economists said. The Commerce Department reported a healthy 5.5% rise in single-family home sales in June, extending a 4.3% rise in May.
