Transportation Clips Factory Orders

Orders to U.S. factories shrank slightly in April as demand for aircraft faded, but analysts said Tuesday that other signs were emerging that manufacturing may be shedding its lethargy.

Although orders edged down 0.1%, the decline was because of a drop in sales in the volatile aircraft industry. Excluding transportation, orders posted the biggest monthly gain in nearly two years: 1.9%.

“After a bad year, I think things are looking up,” said economist Mark M. Zandi of Regional Financial Associates in West Chester, Pa.

“Manufacturing is beginning to pick up some steam,” said Sung Won Sohn, an economist with the Norwest Corp. in Minneapolis.

“I see more strength coming in part because the inventory correction is behind us,” he said.

A buildup of stocks on shelves and back lots late last year resulted in reduced orders and a slowdown in output and manufacturing job growth. But analysts contend the excess inventories now have largely been sold off, setting the stage for more orders and increased production.

Financial markets had little reaction to Tuesday’s report, preferring to wait until Friday’s release of the May employment and wage data.

The Dow Jones industrial average climbed 41 points to 5,665,71. The yield on the Treasury’s main 30-year bond fell to 7%.

Orders for both durable and nondurable goods totaled a seasonally adjusted $309.1 billion in April, down from $309.5 billion the previous month, when they increased 1.7%, the Commerce Department reported.

Bookings for big-ticket durable goods such as cars and computers fell 1.9%, the third decline in four months.

But when transportation data is stripped out, orders shot up 1.9%, the largest advance since a 2.7% jump in August 1994.

Orders for nondurable goods such as food and fuel rang up a broad-based 2% gain, partly because of higher oil prices, not volume.

Still, unfilled orders fell 0.2%, the first decline since August, following a 1% gain in March. A shrinking backlog suggests businesses are able to meet consumer demand with current production facilities and manpower.

Inventories, another sign of future activity, edged up 0.2%, wiping out an identical decline a month earlier.

Orders for nonmilitary capital goods excluding aircraft fell 3.3% after a 2% decline in March. These orders, often a barometer of business plans to expand and modernize, have been a major source of economic strength until recently.

Orders for military goods, another volatile sector, fell 34.8%, much of it because of the drop in aircraft orders. They had shot up 63.4% in March.

Among durable goods, transportation orders fell 12.8%, nearly erasing a 14.6% jump the previous month. It was the largest drop since a 14.8% decline in July 1994.

Although motor vehicle orders rose following the General Motors Corp. strike in March, they were more than offset by the sharp drop in aircraft.

Orders for electronic and other electrical equipment also fell in April, down 2.7% largely because of declining tickets for communications equipment.

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Factory Orders

Total new orders, in billions of dollars, seasonally adjusted:

April 1996: $309.1

Source Commerce Department