Factory orders down, reflecting continuing problems in economy
WASHINGTON (AP) – Orders to U.S. factories for big-ticket goods dipped by 0.6 percent in August, another negative signal for the struggling manufacturing sector. But in a dose of good news, new home sales hit a monthly all-time high. The decline in orders for “durable” goods – items expected to last at least three years – reflected slackened demand for cars, communications equipment and machinery, the Commerce Department reported Thursday.
Another Commerce Department report showed sales of new homes climbed to a record seasonally adjusted annual rate of 996,000 in August, representing a 1.9 percent increase from July.
New home sales in August were stronger than analysts were predicting. They were forecasting a drop of around 3.5 percent.
Housing is one of the few bright spots in the economy. Low mortgage rates are enticing buyers. And rising home values, especially given the slumping stock market, make owning a house a good investment.
In August the average price of a new home rose 2.1 percent from the previous month to $221,000.
By region, new home sales in the West rose by 7.4 percent in August to a seasonally adjusted annual rate of 276,000. In the South, sales went up by 1.3 percent to a rate of 476,000. But in the Northeast, sales dropped by 9.5 percent to a rate of 57,000. And in the Midwest, sales were flat at a rate of 187,000.
In the manufacturing report, the 0.6 percent drop in durable goods orders marked a better performance than many analysts were expecting. They were forecasting durable goods orders to fall by more than 2 percent.
The decline in August – the second decrease in the last three months – came after orders for costly manufactured goods jumped by 8.6 percent in July.
In a second report, the Labor Department said new claims for unemployment benefits plunged by 24,000 to 406,000, an encouraging sign for workers dealing with the lackluster job market.
The manufacturing sector was hardest hit by last year’s recession. To cope, the industry throttled back production and got rid of hundreds of thousands of workers.
Although industry is back on its feet, manufacturing isn’t bursting with vitality and has recently hit some rough patches.
Companies, whose profits took a hit during the recession and have yet to fully recover, have been reluctant to make big commitments in hiring and in capital spending, forces not only affecting manufacturing but also restraining the recovery.
Worried about the economy and the possibility of a war with Iraq, the Federal Reserve on Tuesday decided to hold interest rates steady at a 41-year low. But in a rare move, two members dissented, saying they favored a rate cut, which would have been the first this year.
Against this backdrop analysts say expectations are rising that the Fed might cut rates at its next meeting in November.
In Thursday’s report, orders for automobiles fell by 3.8 percent in August after a sizable 8.4 percent rise in July.
Although free financing deals have bolstered car sales, economists say production levels were too brisk to be maintained and needed to slow a bit.
Orders for communications equipment dropped by 4 percent in August, following a big 9.2 percent advance.
Orders for computers dipped by 1.4 percent, following a sizzling 13.2 percent gain.
For machinery, orders fell by 2.5 percent in August, after a strong 10.4 percent increase.
One of the reasons the economy fell into recession last year was because of deep cutbacks in capital spending by businesses.
A sustained turnaround in capital spending is considered a necessary ingredient for the economy to return to full health.
Consumers, whose spending accounts for two-thirds of all economic activity in the United States, have been the strongest force for growth. But with the stock market slide, eroding consumer confidence, the stagnant job market and fears about a possible conflict with Iraq, some economists wonder just how much consumers will be willing to spend in the months ahead.