Factory Orders Decline, but Analysts See a Broad Strength

A sharp drop in military and commercial aircraft sales in February caused the first decline in orders to U.S. factories since last summer.

Analysts said, however, that a close look at Wednesday’s report from the Commerce Department discloses underlying strength in the manufacturing sector.

Orders to U.S. factories fell 1% in February, breaking a six-month string of advances, the department said. Orders for both durable and non-durable goods were a seasonally adjusted $269.9 billion, down from $272.6 billion in January.

“I would urge people to focus on the details of this report,” said Marilyn Schaja, an economist with Donaldson, Lufkin & Jenrette Securities Corp. in New York. Without the highly volatile military and aircraft orders figures, she said, “It was the eighth increase over the last nine months.”

Orders for non-defense capital goods, excluding aircraft, rose 4.9% in February. These orders often are a barometer of business plans to expand and modernize.

Economists for Merrill Lynch & Co. said they are encouraged that new orders for computers and communications equipment, possibly a better indicator of manufacturing growth, rebounded in February after a January drop.

The stormy winter weather in much of the nation also may have caused disruptions that held down February orders, analysts said.

Until February, orders had risen every month since last July, when they declined 1.9% .

Inventories in February rose 0.3% to $380 billion, the second straight increase and matching the rise in January.

“It’s a turning point,” said Michael P. Niemira of Mitsubishi Bank in New York City. “Manufacturers have been extremely reluctant to increase inventories. Now they seem to be just starting to accept that demand is up and will continue to be up.”

The small increases in inventories likely will reinforce economic growth and manufacturing employment in coming months, analysts said. The buildup may have been caused by weather disruptions, not an underlying drop in demand, they said.

The backlog of unfilled orders fell 0.3% to $445 billion, the 11th decline in the last 12 months. The orders backlog, often seen as a measure of whether current facilities and manpower are able to keep up with demand, rose 0.6% in January.

Manufacturing has been a mainstay of economic expansion in the last three months of 1993.

Factory Orders

Total new orders in billions of dollars, seasonally adjusted

Feb., ‘94: 269.9

Source: Commerce Department