Factory Orders Fall; Productivity Rises
The situation on U.S. factory floors remained grim in January with orders tumbling, the government said Tuesday in a report that may help spur additional interest rate cuts by Federal Reserve policymakers this month.
But a separate report showed the economy’s long-term prospects may not be quite so bleak, with the productivity of U.S. workers continuing to grow in the final quarter of last year even while the economy was losing steam. For the year, productivity growth turned in its best performance since 1983.
“I think these kinds of numbers make it easier for the Fed to ease policy,” said economist Mark Zandi of Economy.Com in West Chester, Pa. “They [the Fed] must take some solace that productivity growth is holding up as well as it is in the rapid weakening in the broader economy, and it suggests in the long run that inflationary pressures will be more at bay.”
Growth in productivity, or worker output per hour, helps keep wages low and inflation tame. This lets the Fed ease monetary policy without fear of pushing up prices.
Still, a whiff of wage inflation came in the productivity report, with unit labor costs rising sharply in the period.
Plummeting demand for new aircraft helped drive down U.S. factory orders in January to the lowest level since November 1999, the Commerce Department said. The value of new factory orders fell 3.8% to a seasonally adjusted $366.5 billion.
January’s decline in factory orders was the first since October, but was closely in line with Wall Street forecasts of a 3.4% decline. Economists had expected the drop after seeing reports of slipping orders for durable goods.
Without the volatile transportation sector, which includes aircraft, January factory orders slipped only 0.3% after falling 1.1% in December.
Orders for durable goods--big-ticket items such as refrigerators and washing machines intended to last for several years--excluding defense fell 6.3% in January, the first decline since October.
There were signs of strength in some sectors. For instance, orders for industrial machinery and equipment, including computers, rose 5.3% to $44.24 billion after a 3.2% decline in December.
Even with a sharp economic downturn at the end of 2000, the productivity of U.S. workers grew in the final quarter, but unit labor costs shot up, the Labor Department said.
Productivity for workers outside the farm sector rose at an annual rate of 2.2% in the fourth quarter, revised down slightly from a previously estimated 2.4% rise and weaker than the 3% gain logged in the third quarter.
For 2000, productivity outside the farm sector surged 4.3%, the strongest rise since 4.5% in 1983.
“The thing that is impressive, I think, is that in the second half [of 2000] we had an increase in productivity that exceeded the increase in GDP [gross domestic product],” said Lyle Gramley, consulting economist for the Mortgage Bankers Assn. and a former Fed governor.
Wall Street economists in a Reuters survey forecast productivity in the fourth quarter would rise 2% and unit labor costs would rise 4.5%.
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Factory Orders
New orders, in billions of dollars, seasonally adjusted:
January: $366.5 billion
Source: Commerce Department
