Nation’s factories see signs of recovery
WASHINGTON (AP) – The nation’s factories, hardest hit by last year’s recession, saw fresh signs of improvement in April, with orders for costly manufactured goods rising for a fifth straight month. The Commerce Department reported Thursday that orders for durable goods- items expected to last at least three years – jumped 1.1 percent, with demand especially strong for cars, communications equipment and machinery.
Economists were encouraged by the news, saying it may point to the beginning of a turnaround in capital spending by businesses, something that is necessary for a solid recovery for the national economy. Deep cuts to such spending were key to the economy’s plunge into recession last year.
“This report seems to indicate that the collapse in investment is behind us and we are in the beginning stages of a rebound,” said economist Joel Naroff of Naroff Economic Advisors.
Clifford Waldman, president of Waldman Associates, said business investment in new plants and equipment, which has fallen for five straight quarters, may actually post a small increase in the current quarter.
In other economic news, fewer Americans filed new claims for unemployment insurance, but people who are out of work are having trouble finding jobs.
The Labor Department reported that for the work week ending May 18, initial jobless claims dropped by 9,000 to 416,000, an eight-week low. But even with the decline, economists said claims are still high, suggesting that the job market remains sluggish.
The number of laid-off workers continuing to draw jobless benefits climbed to a 19-year high of 3.87 million for the work week ending May 11.
“If businesses are spending a little more on goods, they are continuing to hold the line on spending on workers,” said Oscar Gonzalez, economist at John Hancock Financial Services.
In the manufacturing report, the 1.1 percent advance followed a 0.2 percent increase in March and was bigger than many analysts were expecting. Factories are boosting production as many businesses need to replenish inventories. Throughout last year, companies worked hard to get rid of excess stocks of unsold goods that had piled up during the slump.
In April, new orders for cars, trucks and automobile parts shot up 12 percent, the biggest increase since August 1998. In March, these orders fell 1.2 percent.
Even with the increase in automobiles, orders for all transportation equipment dropped by 2.6 percent in April. That’s because of a huge drop in orders for airplanes, which plunged 37.1 percent.
Excluding the volatile transportation component, where orders can bounce around from month to month, durable-goods orders grew 2.9 percent in April, the biggest increase since October.
“After a prolonged drought, this is welcome evidence of a recovery under way in manufacturing,” said Jerry Jasinowski, president of the National Association of Manufacturers.
Orders for communications equipment rose 12 percent, after a 11 percent decline in March. For machinery, orders went up 4 percent following a 1.5 percent drop. Orders for primary metals – including steel – rose 5.1 percent, on top of a 2.3 percent increase. And orders for electrical equipment and household appliances grew 7.6 percent, after falling 2 percent.
However, orders for computers continued to be soft. Those orders dipped 0.3 percent in April, following a 7.5 percent decline, suggesting that the high-tech sector is continuing to struggle with the lingering effects of the recession.
Citing uncertainties about the vitality of the recovery, the Federal Reserve earlier this month decided to leave short-term interest rates unchanged at 40-year lows.
Low interest rates should motivate consumers to continue buying – and for businesses to step up investment, which would help the economic recovery. Consumer spending accounts for two-thirds of all economic activity.
Federal Reserve Chairman Alan Greenspan has warned that the recovery could be less than sizzling because consumers, who kept buying throughout the slump, might not have a lot of pent-up demand coming out of it.
Judging from the manufacturing report, “the appetite of consumers is still reasonably good and for companies it is improving,” said Tim O’Neill, chief economist at Bank of Montreal.
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