US: Durables Up, Shipments Off in Late 2000

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Friday January 26 2:59 PM ET Durables Orders Up But Shipments Off in Late 2000

By Glenn Somerville

WASHINGTON (Reuters) - A surge in demand for new commercial aircraft put some lift under the wings of manufacturing orders in December, but not enough to mask a loss of momentum in business, a government report on Friday showed.

The Commerce Department said the value of new orders for durable goods -- items intended to last three years or more -- climbed a surprisingly strong 2.2 percent to $214.33 billion after a 1.8 percent rise in November.

All the end-of-year gain in overall orders came from aircraft. Excluding transportation items such as aircraft and cars, December orders dropped 1.4 percent following a scant 0.3 percent rise in November and a 3.2 percent plunge in October.

The president of the National Manufacturers Association, Jerry Jasinowski, said the report highlighted the risk to the economy from a developing industrial slowdown and called for another aggressive interest-rate cut next week.

``The Federal Reserve (news - web sites)'s action earlier this month to lower interest rates by 50 basis points (a half percentage point) was welcomed but in itself was insufficient if we're serious about averting a recession,'' Jasinowski said.

Rates Headed Down

The U.S. central bank announced a surprise half percentage point reduction on Jan. 3, between its regularly scheduled policy meetings. It is predicted to cut rates again, possibly by another half percentage point, at the conclusion next Wednesday of a scheduled two-day meeting of its Federal Open Market Committee (news - web sites).

The durable goods report offered numerous signs of sluggish manufacturing activity, already evident from a variety of other sources including announcements from automakers Ford Motor Co., General Motors Corp and the Chrysler division of DaimlerChrysler AG that they were cutting assembly rates as vehicles pile up on dealers' lots.

Commerce said shipments of finished goods, a gauge of current activity on the factory floor, declined for a third straight month in December, falling by 0.5 percent to $206.52 billion after a 1.1 percent decrease in November.

It was the first time since mid-1989 -- prior to the last recession in 1990-91 -- that shipments have dropped for three months in a row, a Commerce Department official said.

Federal Reserve Chairman Alan Greenspan (news - web sites), testifying before a Senate committee on Thursday, said U.S. economic growth currently was nearly stalled, though he said chances of a full-blown recession were low. Private economists generally foresee a lackluster first-half performance for the economy followed by a modest rebound later in the year.

New orders for industrial machinery, a component that includes computers, fell 5.3 percent in December to $40.92 billion after a 0.3 percent drop in November. Primary metals orders fell 3.5 percent to $14.31 billion, following a 2.6 percent decrease in November.

Outlook Not Totally Bleak

Not all was bleak, though. Transportation orders soared 14.6 percent to $54.21 billion in December after jumping 7.3 percent in the prior month. The department does not break out new-car orders separately but said the full increase in transportation orders occurred because of aircraft and parts, implying that demand for new cars was waning.

Electrical equipment orders were up 2.4 percent to $41.66 billion on top of a 6.7 percent jump in November.

Greenspan said on Thursday that the economy likely already was experiencing ``a major inventory correction'' in which businesses' stocks of unsold goods were piling up because of a sudden and unanticipated falloff in demand. That may mean a period of adjustment as manufactures ratchet back their output until inventories return to more normal levels.

Economist Joel Naroff of Naroff Economic Advisors Inc. in Holland, Pa., noted that companies already were responding to the slowdown in demand and might be able to do so more quickly now using computers and the Internet to gauge output levels.

``If that is the case, then stability in the manufacturing sector may not be far away and continued orders growth would reinforce that view,'' Naroff said, adding that it might mean another aggressive rate cut next week could mean the Fed would then be able to keep rates steady for some time.

-- Rachel Gibson (rgibson@hotmail.com), January 26, 2001


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