Durable Goods Orders Fall to Lowest Level in 9 Months

Orders to U.S. factories for “big ticket” durable goods tumbled 1.9% in July to the lowest level in nine months, the government said Tuesday, providing further evidence of a weakening economy.

It was the fourth drop this year in the sector, which includes items, from washing machines to warships, expected to last three or more years. The sector is considered a bellwether of the economy’s performance.

The Commerce Department said demand for durable goods totaled a seasonally adjusted $122.9 billion last month, the lowest level since October, 1988.

Orders rose faster than expected, increasing 1.4% in June. That followed a 4.5% plunge in May, the steepest drop in 10 months. Orders had risen in April and March and fallen in February and January.

“The numbers are up and down, up and down, but overall the downs outweigh the ups in 1989,” said economist Cynthia Latta of DRI-McGraw Hill Inc., a Lexington, Mass., forecasting firm.

The latest drop came despite moves by the Federal Reserve Board since early June to nudge interest rates lower. Earlier, the central bank had been raising rates to dampen economic vigor and inflationary pressure.

Time for ‘Sympathy’

Durable goods are among the sectors most sensitive to interest rates because consumers and businesses usually borrow to buy them.

“The durable goods industry is one of the unfortunate casualties of the Fed’s high interest rate policy,” said economist Lawrence A. Hunter of the U.S. Chamber of Commerce.

“It clearly is time for the Fed to show sympathy . . . and to cease fire by lowering interest rates,” he said.

Most of the weakness in July came in military orders, which swing widely from month to month, and non-electrical machinery, an important category which includes computers and a wide variety of industrial equipment.

Military orders plunged 14.7% to $7.6 billion in July following a 17.4% rise in June. Excluding the defense category, orders fell 0.9% in July after an 0.3% gain a month earlier.

Non-electrical machinery plummeted 9.7% last month, the steepest drop in more than three years, to $21.1 billion. That followed a 4.8% rise in June. The Commerce Department attributed half the decline to a drop in orders for engines and turbines.

Sales Expected to Rise

In a sign of strength, however, the closely watched non-defense capital goods sector rose 5.0% to $41.1 billion following a 5.1% gain in June. Analysts use this category as a barometer of business investment plans.

Economist Michael K. Evans, a Washington-based consultant, said he expected durable goods sales to turn up later this year. Housing has begun to rebound in response to recent interest rate declines and that in turn will generate sales of appliances and furniture.

DURABLE GOODSBillions of dollars, seasonally adjusted

July, 1989: 122.9

June, 1989: 125.2

July, 1988: 116.1