Durable-Goods Surge Eases Some Fears : Economy: May’s gain of 2.5% after three straight monthly declines helps curb talk of recession.
Quieting some of the recession talk, the Commerce Department reported Friday that orders for costly, interest-sensitive goods staged a comeback last month after three straight declines.
Analysts said the surge in orders for durable goods, led by demand for aircraft and business equipment, was consistent with a slowing economy, not a recession.
Total orders for long-lasting goods such as airplanes and computers rose 2.5% to a seasonally adjusted $159.6 billion. It was the first increase in orders since January and the strongest rise in six months. New orders were 9.2% higher than for the same period a year ago.
While the size of the increase caught analysts by surprise, they cautioned against exaggerating its significance.
“I think it’s encouraging evidence we’re looking at a slowdown in growth that will prove to be temporary,” said James Coons of Huntington National Bank in Columbus, Ohio. “We may have sub-par growth for a few quarters. But I don’t think the economy is going into a recession.”
Most recent data, particularly a drop in jobs and rising unemployment claims, have pointed to a severe slowdown. But analysts said to keep in mind that industries are still operating at high levels.
They said it was unclear whether the rise in durable goods orders would deflate calls for the Federal Reserve Board to cut interest rates promptly, possibly as soon as July 5-6, when its policy-setting committee meets.
The Fed raised interest rates seven times in a 12-month stretch ended Feb. 1 and has left them unchanged since. Chairman Alan Greenspan has said there is an increased risk of a modest, brief recession, but he played down the chances that it could be severe.
“While the danger of a slide into recession may have been averted, it would still be a good time for the Federal Reserve to cut short-term interest rates,” said Jerry Jasinowski, president of the National Assn. of Manufacturers.
Financial markets generally took the report in stride. The Dow Jones industrial average fell 3.80 points to 4,585.84 and bond yields rose moderately, pushing prices lower.
Analysts noted that the rise in May durable goods orders--the first since a 1.4% gain in January--was concentrated in business equipment and related items, offsetting declines for many consumer-related products. Most indicators show consumer spending, which fueled the economic recovery that began more than four years ago, has slowed dramatically from last year’s peak.
“The economy is still in a slowdown,” said Bruce Steinberg of Merrill Lynch & Co. in New York. “We’re not going anywhere fast. Nothing in the latest report alters our view of weak activity through the third quarter, with some pickup by year-end.”
The Commerce Department said last month’s advance in durable goods was the biggest since a 3.4% increase in November. The May report shows a 3% gain in transportation orders due to rising demand for aircraft that more than offset a drop in automobile orders.
Although orders were up, their value remained well below that of January, and the department revised the April decline to an even sharper 4.5% drop from a previously reported 4.0%. That was the steepest dive since orders fell 5.4% in December, 1991.
Excluding volatile transportation demand, durable goods orders rose 2.3% after sliding 2.7% in April.
Orders for defense equipment jumped 9.5%. Excluding military goods, orders were up 2.3% after falling 3.5% in April. Orders for non-defense capital goods, excluding aircraft, rose 4.1% after falling 5.6% in April. These orders are often a barometer of business plans to expand and modernize.
Unfilled orders, a measure of whether current facilities and manpower are able to keep up with demand, were unchanged last month after a 0.3% decrease.
Shipments in May rose 0.9%, the sixth gain in seven months. They had declined 2.2% in April.
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Goodly Comeback
New orders for durable goods gained last month after three straight declines. Seasonally adjusted, in billions of dollars:
May 1995: $159.6
Source: Commerce Department
