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Weak Manufacturing Economy Sends Factory Orders Plummeting

March 6, 1990

WASHINGTON (AP) _ Orders to factories for manufactured goods took their biggest plunge in more than 15 years in January, the government said Tuesday. Analysts described the 5.4 percent drop as temporary and not widespread but said it still indicated an anemic manufacturing economy.

The Commerce Department said orders for durable and non-durable goods fell to a seasonally adjusted $227.7 billion, the steepest drop since they sank 7 percent in December 1974.

A sharp 10.5 percent January decrease in durable goods orders, to $117.8 billion, led the plunge.

A 28.8 percent drop in transportation orders accounted for 85 percent of the durable decline, said economist Michael P. Niemira of Mitsubishi Bank in New York.

″Obviously, if 85 percent of it is in transportation, that doesn’t say that it is widespread,″ Niemira said.

Automakers laid off 90,000 workers in January while they attempted to shave bloated inventories, but most workers have since returned and, Niemira said, motor vehicle production increased 30 percent in February.

″That will feed directly into this report next month,″ he said.

Also down in January were orders for aircraft, which had shown huge increases the previous two months, and for defense goods. Both sectors are highly volatile and Niemira said both the Boeing Co. and McDonald Douglas already have reported increased aircraft orders during February.

″Aside from those three sectors, basically industry is showing a modest pace of growth,″ explained economist Priscilla Trumbull of DRI/McGraw-Hill in Lexington, Mass. ″Fairly small, but at least it’s growing.″

Economic weakness has been concentrated in the manufacturing and housing sectors since the Federal Reserve began its high-interest policies to curb inflation. Both sectors are often sensitive to interest rates since their products often are financed by loans.

The Commerce Department reported the 10.5 percent decline in durable goods orders last week, saying it was the biggest drop in 32 years of recordkeeping and surpassed the previous record of 9.2 percent set in February 1982 during the last recession.

It followed a 1.2 percent gain in December, which was revised down from 1.9 percent reported last month.

Orders for non-durable goods rose 0.8 percent to $109.9 billion in January after falling 0.5 percent in December. The December drop was revised downward from a 0.3 percent gain reported last month.

Defense orders fell 28.8 percent to $6.95 billion in January after dropping 13.3 percent a month earlier. Excluding defense, factory orders were off 4.4 percent.

Orders in the key category of non-defense capital goods, a barometer of business investment plans, fell 14.2 percent in January to $38.1 billion, reversing a 14.1 percent gain in December.

Shipments of manufactured goods dropped 1.9 percent in January to $226.6 billion. Inventories rose 0.7 percent to $373.9 billion, nearly offsetting a 0.5 percent decrease in December.

If inventories increase without a corresponding gain in new orders, it could signal production cutbacks in the future as factories attempt to get rid of stored goods.

Among the durable goods orders, electrical machinery was down 15.5 percent to $19.2 billion, most of which was in communications equipment.

Non-electrical machinery, including computers and a wide variety of industrial equipment, rose 2.4 percent to $22.3 billion. Primary metals were up 1.2 percent to $11.1 billion.

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