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Factory Orders Fall, Construction Spending Up

October 1, 1987

Undated (AP) _ Orders to U.S. factories slipped 1.7 percent in August, hurt by a big drop in demand for aircraft and weaker military orders, while construction spending climbed 1.6 percent that month, the government reported Thursday.

Meanwhile, on Wall Street, stock prices staged a sharp advance, despite a moderate rise in interest rates in the credit markets.

The Dow Jones average of 30 industrials jumped 42.92 to 2,639.20.

The Commerce Department said August orders for both durable and non-durable goods fell to $202.5 billion following a small 0.3 percent gain in July.

The report showed weakness in both military and civilian orders in August. Demand for military equipment fell 3.8 percent in August to $9.6 billion.

Some analysts said the weakness in August was merely a temporary setback after a string of healthy gains, but other economists said the downturn may be more ominous, especially given the fact that inventories have been rising as well.

The 1.7 percent drop in August orders was the first decline since a record 5.3 percent fall in orders last January, a decrease which had been blamed on initial turmoil caused by the new tax law.

″To have a one-month decline is nothing to get worried about. The trend is very positive, reflecting increasing exports of U.S. manufactured goods,″ said Michael Penzer, an economist at Bank of America in San Francisco.

But Michael Evans, head of a Washington forecasting firm, took a more pessimistic view of the August figures, noting that inventories of manufactured goods rose 0.6 percent in August.

″We have the wrong combination. We have orders going way down and inventories going way up,″ he said.

In its other report Thursday, the Commerce Department said construction spending shot up 1.6 percent in August - the biggest increase in four months - to an annual rate of $399.6 billion.

However, analysts said the August figures did not change their view that construction spending, especially for apartments and office buildings, would remain weak for the foreseeable future.

In other economic developments Thursday, World Bank President Barber Conable promised to ″make a strong case to Congress″ for a major increase in the bank’s loan reserves, claiming declines in the dollar have added to the urgency of the request.

Conable, speaking to reporters on the final day of the annual meetings of the bank and the International Monetary Fund, said without an increase in World Bank capital the bank may reach its lending limits sometime in 1988.

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