Factory Orders Decline for the Third Month in a Row
Orders at the nation’s factories fell 1.7% in January for a third straight monthly decline, the Commerce Department said Tuesday, signaling to many analysts that the economy is even weaker than feared and that unemployment is likely to rise.
It was steeper than the 0.6% slide that economists had forecast and followed a revised decline of 0.5% in December and a steep 5.8% drop in November.
The fall in orders points to higher unemployment ahead as factories will be operating at a slower pace for some months.
“It confirms that in January the economy was even weaker than we realized,” said Cynthia Latta, senior financial economist with DRI/McGraw Hill Inc. in Lexington, Mass.
The nation’s gross national product, which measures total goods and services, shrank at a 2% annual rate between October and December. Latta predicted that it will shrink in the current quarter at a 2.3% annual rate, then grow at a 0.1% rate between April and June.
But the outlook is for more layoffs as activity slows at the nation’s factories. Unemployment in January hit a 3 1/2-year high of 6.2% and jobless data for February, to be released Friday, is expected to show another rise.
Unemployment will probably average about 6.9% in the final three quarters of 1991, Latta said, and could hit 7% as the economy slowly regains vigor.
A key component of factory orders, durable goods, fell by 1.8% in January after rising 3.1% in December. Long-lasting durables such as refrigerators, cars and planes account for a significant part of higher-paying factory jobs.
Car makers have slashed production in recent months and there were signs that the cutbacks were paying off. Shipments of new cars to dealers went up 23% in January after a decline of more than the 21% the month before.
Nonetheless, the National Assn. of Manufacturers cautioned that the recession may drag on longer than anticipated.
“In the wake of Iraq’s capitulation, some unrealistic expectations emerged that the recession would end immediately,” said Gordon Richards, an economist for the manufacturers’ organization. “The recovery will probably not emerge until the summer, and it may be rather weak.”
The war’s swift end should bolster consumer confidence--a potent fuel since consumer spending accounts for two-thirds of economic activity.
But that stimulus will be restrained by higher jobless rates, which cut incomes and Americans’ spending power.
Defense orders, a volatile category made even more so by the Gulf War, fell 9.7% in January after jumping 51.6% in December. Excluding defense, factory orders fell 1.4% after falling 1.7% in December.
Manufacturers’ inventories were unchanged in January after declining by 0.8% in December.
A week ago, the department said durable goods orders had fallen 0.7% in January, but that was revised downward. Durables account for about half the orders index, so any change strongly affects the figures.
Transportation equipment orders fell 0.2% in January after dropping 1.8% in December. Within that category, orders for aircraft and missiles were down by 0.1% in January after falling 2.6% in December.
Orders for non-durable goods fell by 1.7% in January after declining 3.9% in December.
The only major category of goods showing a large rise in January was non-electrical machinery, where orders climbed 10.8% after declining by 7.9% in December.
Orders for non-defense capital goods, a measure of business expansion plans, fell 9.3% in January after climbing 17.8% in December.
Shipments were unchanged from December at $231.4 billion, following declines the previous two months.
Unfilled orders, an indication of how busy factories will be in coming months, slipped 0.2% to $519.5 billion.
FACTORY ORDERS
Total new orders in billions of dollars, seasonally adjusted.
Jan., ‘91: 230.6
Dec., ‘90: 234.6
Jan., ‘90: 227.6 Source: Commerce Department
