Durable Goods Orders Skid in October

Factory orders for costly durable goods dropped in October for a second straight month as demand for semiconductors and electrical equipment fell at the sharpest rate in two years, the government said Tuesday.

Analysts said last month’s unexpected tumble in orders implied that some of the zip was going out of the U.S. economic expansion, though not enough to imply a sharp slowdown is developing. Caution ahead of year 2000 may have slowed orders for some goods.

The value of total new orders for durable goods fell 1.3% to $200.9 billion in October, the Commerce Department said. It also revised its September figure to a steeper 1.9% decline from a previously reported 1.3%.

October’s decline ran sharply counter to forecasts for a 0.4% rebound from September. The monthly report is highly volatile because the orders are for costly, long-lasting goods like airplanes and computers. But analysts said there appeared to be a softening trend.

“Orders are slowing and that may be a sign that some of the bloom is off the economic rose,” said economist Joel Naroff of Naroff Economic Advisors in Holland, Pa. He said weaker orders should be viewed as a “caution flag” at this stage rather than conclusive evidence of faltering in the manufacturing sector.

New orders for electronic and electrical equipment plummeted 15.3% to $32.3 billion in October, the biggest fall since a 16.6% decrease in July 1997. Orders for those goods had dropped 1.1% in September.

“Some of this may reflect reluctance to put in new heavy equipment in advance of Y2K,” said economist Carl Tannenbaum of ABN/AMRO North America in Chicago, referring to concerns that some computers and computer-controlled equipment may malfunction when the year 2000 date change occurs.

Transportation equipment orders rose 3.4% in October to $48.3 billion after falling 4.7% in September.

But excluding the large transportation component, October durables orders fell 2.6% to $152.6 billion.