Record Plunge for Durable Goods Source: Associated Press Publication date: 2000-08-24

WASHINGTON (AP) -- Orders to U.S. factories for costly manufactured goods in July took their biggest-ever recorded dive as demand fell sharply for airplanes and electronic equipment, additional evidence that the economy is finally slowing.

The Commerce Department said Thursday that the larger-than-expected 12.4 percent decline left orders for durable goods -- items expected to last at least three years -- at a seasonally adjusted annual rate of $212.4 billion.

"The bottom line for America's manufacturers is that the economy is slowing to a more sustainable pace, with strong non-inflationary growth continuing but at a less accelerated rate," said National Association of Manufacturers' economist Dave Huether.

Over the last 14 months, the Federal Reserve has boosted short-term interest rates six times in an effort to cool the economy and keep inflation from escalating.

The durable-goods report "shows the economy is just moving at a slower pace than it had, but that doesn't mean it's crawled to a stop. The economy continues to forge ahead," said Richard Yamarone, economist with Argus Research Corp.

On Tuesday, the central bank decided not to raise rates, the second meeting in a row in which it opted to leave rates unchanged. Nonetheless, the Fed left the door open to further rate increases in the future, warning that the tight labor markets could spark wage and price pressures.

In a second report, the number of Americans filing new claims for unemployment benefits rose last week for the fourth week in a row, by 4,000 to 314,000. That suggests the tight labor market is "loosening around the edges," said Merrill Lynch economist Stan Shipley.

In minutes of its June 27-28 meeting released Thursday, Fed policymakers, heartened by signs of slowing economic growth, were unanimous in their decision not to boost rates.

"The increasing though still tentative indications of some slowing in aggregate demand, together with the likelihood that the earlier policy tightening actions had not yet exerted their full retarding effects on spending, were key factors in this decision," the minutes said.

On Wall Street, a late buying spree Thursday helped push blue-chip stocks to their highest levels since the spring. The Dow Jones industrial average, after fluctuating in and out of positive territory for much of the session, closed up 38.09 at 11,182.74.

July's durable-goods performance largely reflected a record 31.7 percent decline in orders for transportation equipment, mostly due to lower demand for airplane and aircraft parts, the government said.

Excluding the volatile transportation sector, durable-goods orders fell 4.8 percent, the second decrease this year.

The transportation sector can swing widely from month to month because it includes costly items such as airplanes. For instance, in June, orders for transportation equipment surged a huge 41.7 percent, helping boost total orders for big-ticket manufactured goods up by 9.5 percent.

While many analysts were surprised by July's sharper-than-expected decline in overall orders, they didn't find it worrisome given the report's notorious volatility.

"Am I concerned that the manufacturing sector of the economy is in some sort of trouble? The answer to that is clearly no," said Ken Mayland, economist with ClearView Economics.

Mayland and other economists noted that even with last month's plunge, new orders for durable goods so far this year are running 9.9 percent higher than for the same period a year ago.

Meanwhile, orders for electronics and electrical equipment, including semiconductors, circuit boards and home appliances, declined by 16.8 percent in July due to a drop in demand for electronic components and communications equipment. In June, all orders for electronics and electrical equipment fell 0.6 percent.

Primary metals, the category that includes steel, had a 1.4 percent reduction in orders last month, following a 1 percent increase the month before.

There was a bright spot in the report for the nation's manufacturers, however. Orders for industrial machinery, including computers and machine tools -- up four of the last five months -- rose 4.3 percent in July after posting a 1.1 percent gain in June.

Shipments of big-ticket items, a good sign of current demand, fell 1.9 percent in July, led by a drop in shipments of transportation products. In June, total shipments of durable goods rose 1.6 percent.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=13167561&ID=cnniw&scategory=Economy%2FMarkets%3AEconomy

-- Martin Thompson (mthom1927@aol.com), August 25, 2000

Answers

This is a whopping drop.

In other times Wall Street would be yelling, impending recession. This time, virtually no mention.

I wonder why.

-- Uncle Fred (dogboy45@bigfoot.com), August 25, 2000.

Could there be some hidden y2k factor behind this big drop, do you suppose?

-- QMan (qman@c-zone.net), August 25, 2000.

I don't understand the economics of this, but it sounds horrible. I can't remember when I last heard of a double-digit drop.

-- LillyLP (lillyLP@aol.com), August 25, 2000.

There does seem to be something rotten in Denmark here. This does seem like an overly huge drop. In one month, that's absolutely horrendous.

-- Nancy7 (nancy7@Hotmail.com), August 25, 2000.