Demand for big-ticket goods plummets in June
By Jeannine Aversa Associated Press Writer
WASHINGTON (AP) – Orders to U.S. factories for big-ticket goods, including cars and computers, fell in June by the largest amount in seven months, raising fears that the stock market malaise may be causing Americans to rein in their spending, which would slow the recovery.
Economists were rattled by a Commerce Department report Thursday showing orders for costly manufactured “durable” goods dropped by 3.8 percent in June from the previous month. Many economists were predicting an increase in bookings. The weakness was widespread.
The decline in orders along with a 1.4 percent drop in shipments – a good barometer of current demand – was viewed by economists as an ominous sign that businesses, battered by the sour stock market, may be growing even more uncertain about the economy’s recovery.
“The report suggests that there is an endemic concern about the state of their own businesses, whether consumers will step up and buy their products and the prospects for the economy in general,” said Mark Zandi, chief economist for Economy.com.
“I think it is becoming clear that the recovery in the second half is going to be very disappointing,” Zandi said. He predicted growth in the second half to average around 2 percent to 2.5 percent, a below-par pace.
But Treasury Secretary Paul O’Neill – the president’s chief economic spokesman – expressed a much more upbeat view.
“The reality is that our economy remains solid, and our recovery is well under way,” O’Neill told the National Association of Manufacturers. He predicted the economy would rebound to growth of around 3 percent to 3.5 percent by the end of this year.
The durables report also raised new questions about businesses’ willingness to make capital investments, a key ingredient to the economy’s full recovery, analysts said.
“Stock market declines may have already impacted capital spending plans,” said Merrill Lynch economist Stan Shipley.
Adding to some economists’ concern was a National Association of Realtors report that sales of existing homes – the largest part of the housing market – plunged by 11.7 percent in June from the month before. That left sales at a seasonally adjusted annual rate of 5.1 million, the lowest level in nine months.
Existing-home sales, however, have been running at brisk levels for much of this year and the association is forecasting record sales for all of 2002.
New-home sales, meanwhile, rose to a record seasonally adjusted annual rate of 1 million in June, a 0.5 percent hike over May’s level, the Commerce Department said.
Most economists believe low mortgage rates will continue to support the housing market, which in turn would help the recovery. Freddie Mac, the mortgage company, said Thursday that the average rate on a 30-year fixed-rate mortgage fell this week to 6.34 percent, the lowest level since it began conducting its nationwide survey in 1971.
A pair of Labor Department reports offered U.S. workers some encouraging news.
Workers’ wages and benefits grew by 1 percent in the April-June quarter from the previous quarter, the fastest pace in six months. That followed a 0.8 percent advance in the first three months of this year.
And new claims for unemployment insurance dropped to a 17-month low, suggesting that the pace of layoffs is stabilizing. Claims fell last week by a seasonally adjusted 21,000, to 362,000.
Other recent reports on manufacturing activity has shown improvements for the sector, which had been hardest hit by last year’s recession. June’s decline in orders for durable goods – items expected to last at least three years – was the first since March and came after a 0.6 percent advance in May.
The fact that the drop in June was so broad-based was worrisome to many economists. Orders for cars, computers, communications equipment, machinery, metals, metal products and electrical equipment all showed declines.
“The glass remains half-empty for many manufacturers and the recovery – while well under way – has not yet accelerated to a satisfactory pace,” said David Huether, chief economist for the National Association of Manufacturers.
Given the uncertainty, the Federal Reserve may keep short-term interest rates at 40-year lows through the rest of the year, many economists believe. The Fed has opted to leave rates alone at each of its four meetings this year. It meets next on Aug. 13.
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On the Net:
Durables and new-home sales: http://www.commerce.gov/
Compensation costs and jobless claims: http://www.dol.gov/
Existing-home sales: http:/
ealtor.org