Orders placed with U.S. factories in April showed the largest increase in five months and retailers reported strong May sales, as domestic demand provided a cushion against the drag the Asian crisis has had on exports.
Factory orders rose 1.2% to a seasonally adjusted $340.11 billion in April, the Commerce Department said Thursday. March orders rose 0.2%, following a 0.7% decline in February.
Sales at the nation's retailers last month rose 8.2%, the second-strongest showing in more than four years, as measured by the Bloomberg Same-Store Sales Index. The index rose 11.5% in April. Specialty and apparel stores led the gain, followed by sales at discount stores.
"It's a tale of two economies," said Paul Kasriel, an economist at Chicago's Northern Trust Co. "We have a strong household sector, but there's doubt. . . . Asia is starting to have profound negative effects on manufacturing."
One sign of trouble on the manufacturing front is the buildup of unsold goods. Factory inventories rose 0.5% in April for the sixth increase in seven months, while shipments dropped 0.8%. Excessive stockpiles could force manufacturers to slow production and reduce prices as they try to get rid of unsold goods.
Also, the government reported separately that nonfarm productivity rose in the first quarter at the slowest pace in a year. Worker productivity--a measure of the time and effort of providing goods and services--rose at a revised annual rate of 1.1% in the first quarter, the Labor Department said.
That's up from an initial estimate of a 0.2% increase and lower than the increase of 1.4% at an annual rate recorded in the fourth quarter.
In a sign the economy might be slowing, the number of workers filing for state unemployment benefits rose last week to its highest level since early January, a rise of 30,000 to a seasonally adjusted 339,000, the Labor Department said. Claims fell by 5,000 the previous week.
And the number of planned job cuts by major U.S. businesses increased by almost a third in May from a year earlier, according to a survey by employment firm Challenger, Gray & Christmas, with telecommunications taking some of the biggest hits.
A look at the big picture shows the rise in manufacturing inventories is "consistent with the notion that we're going to see some more slowdown in the manufacturing sector," said Tim McGee, chief economist at the Tokai Bank Ltd. in New York.
And that slowdown, analysts caution, will likely have a domino effect in the U.S. and elsewhere. All the manufacturing economies of large industrial countries "have been hit by the contraction in Asian economic activity," according to economist Ed Hyman's ISI Group in New York.
April's overall factory orders increase was the largest since a 2.4% gain in November, Commerce Department figures showed. Excluding transportation, factory orders rose 0.3% in April to a record $294.862 billion. Excluding military hardware, factory orders increased 0.6%.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Percentage change from previous quarter at annual rate, seasonally adjusted:
1st-quarter 1998: +1.1%
Source: Labor Department