Factory Orders Point to Surging Economy
A growing backlog of unfilled orders at U.S. factories reported Wednesday is the latest evidence the economy’s brisk momentum will carry into the spring and that more interest rate increases may be needed to tame inflation pressures.
For the sixth consecutive month, new orders for manufactured goods piled up faster in February than factories could ship completed items to their customers, the Commerce Department said.
The report helped produce another bad day on Wall Street by heightening concerns the Federal Reserve Board will follow up on last week’s quarter-point tightening in short-term interest rates.
The Dow Jones industrial average fell 94.04 points to close at 6,517.01, about 8% below its March 11 peak. The average fell as much as 111.41 points but partly recovered and narrowly avoided the third triple-digit drop in four trading sessions. U.S. bonds were little changed.
“We have a strong economy . . . and its momentum is going to continue into the spring,” said economist Carl Palash of MCM MoneyWatch in New York. “As a result, I see the Fed tightening two more times, on May 20 and also July 2.”
A growing overhang of unfilled orders suggests businesses will have to increase production and perhaps hire more workers to meet demand. If they can’t increase production or find qualified workers, that implies needed manufactured goods could become scarce and prices could rise.
Increases in interest rates dampen demand and would give factories breathing room to catch up and whittle the pileup of unfilled orders.
Building on a strong 2.5% gain in January, new orders rose 0.8% in February to a seasonally adjusted $325.9 billion, a record high. Shipments rose 0.9% to $321.5 billion, the seventh gain in eight months.
Nevertheless, the backlog of unfilled orders rose 0.9% to $523.6 billion. That’s enough to keep factories busy for 2.94 months at the current pace of shipments, even if no new orders come in.
The Commerce Department said orders for durable goods--expensive items such as cars and computers intended to last for at least three years--rose 1.5% in February after shooting up 3.8% the month before. Nondurable-goods orders edged 0.1% higher after a 0.9% gain in January, with the greatest strength evident in paper products and chemicals.
Within durable goods, a big 7.1% gain in orders for communications and other electronic equipment more than offset a 4.1% drop in transportation equipment.
Industrial machinery and equipment rose 1.9%, the third consecutive gain. Fabricated metal products increased 2.1%, but primary metals such as steel fell 0.4%.
Orders for capital goods, excluding the volatile military and transportation sectors, advanced 6.9% in February after a 3.1% rise a month earlier.
A report Tuesday from the National Assn. of Purchasing Managers suggested that manufacturing strengthened again in March, growing at the fastest pace in more than two years.
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Factory Orders
New orders, in billions of dollars, seasonally adjusted:
February 1997: $325.9
Source: Commerce Department
