Factory Orders Drop, 5th Decline in 7 Months

Factory orders for big-ticket durable goods dropped 1.9% in April, the fifth decline in seven months, the Commerce Department reported Friday.

The decline was led by plunging aircraft orders, which often are volatile, but many other components were down as well, including orders for communications equipment, the department said.

“It looks to me like another mediocre report,” said Evelina Tainer, an economist with Indosuez Carr Futures Inc. in Chicago. “It doesn’t suggest a lot of strength in the manufacturing sector.”

Orders are considered a key gauge of the nation’s manufacturing sector, and weakness usually means slack production and slower job growth.

In fact, the Labor Department has reported the manufacturing sector has lost 78,000 jobs since February, including 17,000 in April.

Durable goods are items such as cars and computers expected to last more than three years.

But while the manufacturing sector remains weak, other areas of the economy are expanding moderately, including housing and retail sales. And while industrial employment has shrunk recently, other sectors have experienced job growth.

And in a separate report released Friday, a survey of 42 analysts by the Federal Reserve Bank of Philadelphia showed the U.S. economy will grow at a faster pace this year. The gross domestic product will rise 2.2% this year, more than the survey’s previous estimate of a 1.8% economic growth rate. For 1997, analysts project a 2.1% growth rate. Last year, the economy grew at a 2.0% pace.

Orders for durable goods totaled a seasonally adjusted $166 billion in April, down from $169.3 billion in March, when surging aircraft orders pushed billings up 2.6%. The 1.9% drop was much steeper than the 0.5% that many economists had predicted.

Transportation orders fell 12.6% as declining aircraft orders offset a rebound in cars and trucks after an auto workers strike in March. It was the third decline in four months.

Excluding the transportation component, orders rose 1.7%. It was the fourth increase in five months and the largest since a 2.1% advance in October.

Orders for primary metals such as steel shot up 7% after falling 3.7% a month earlier. Analysts said the jump was due largely to the resumption of auto production.

Ticket orders for industrial machinery and equipment, including computers, were up 0.9%, but failed to regain a 4.5% loss in March.

Other components fell, however, including a 2.7% drop in orders for electronic and other electrical equipment that resulted largely from tumbling communications equipment purchases.

Orders for nonmilitary capital goods excluding aircraft fell in April for a second straight month, down 2.8% after falling 1.8% in March.

These orders often are a barometer of business plans to expand and modernize, and have been a stimulus to growth in recent years.

Military orders plunged 35.1% after shooting up 62.9% in March, largely because of aircraft orders. Excluding this category, overall orders were unchanged.

The unfilled orders dipped 0.2% after rising 1.2% in March. It was the first decline since August. A shrinking backlog suggests little need for additional workers.

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SH Durable Goods

New orders, seasonally adjusted, in billions of dollars:

April, 1996: $166.0

Source: Commerce Department