U.S.

No Good News For Goods

By CBSNews.com staff CBSNews.com staff

November 28, 2000 / 8:04 AM EST / CBS

Orders to U.S. factories for big-ticket manufactured goods fell 5.5 percent to $209 billion in October, the Commerce Department said Tuesday.

Demand fell in most industries in October, although the loses were most visible in transportation, which fell 15.8 percent to $44.9 billion due to a 58.2 percent drop in civilian aircraft orders. Demand for primary metals including steel dropped by the largest amount in nearly two years.

The Commerce Department said that last month's decline in orders for durable goods, items expected to last three or more years, was the first since a 13.2 percent decrease last July. Orders had risen by 2.4 percent in September.

The New York-based Conference Board announced Tuesday that consumer confidence also took a sharp fall in October, dropping to its lowest level in more than a year for the second straight month.

The non-profit organization's Consumer Confidence Index, which gauges how Americans feel about business conditions, is determined by how consumers currently view the U.S. economy and what their expectations are for the future.

"The nine-point drop in consumer confidence over the last two months underscores an anxiety about future economic conditions," Lynn Franco, director of the board's Consumer Research Center, released in a statement Tuesday. "The dip in expectations may reflect concern about the still unresolved presidential plection. But confidence in current economic conditions points to strong holiday spending ahead."

The CCI now stands at 133.5, a modest drop from the revised 135.8 reported in October and a significant decline from the record high of 144.7 last registered in May. The index compares results to its base year, 1985, when it stood at 100.

A sampling of 5,000 households that said current business conditions were "good" dropped 1.3 percent from October to 42.1 percent. Those rating conditions as "bad" fell to 8.8 percent from 9.7 percent and consumers claiming jobs were "hard to get" declined to 11.4 percent, down from 12 percent in October.

The $12.1 billion decrease in the factory sector presents a puzzle for economists on the Street and at the Federal Reserve. Some economists believe the slowdown is merely a correction for an inventory buildup earlier this year. They say the economy remains strong and that factory output will rebound.

Others worry that the slowdown - in reaction to a string of interest rate increases by the Federal Reserve - could signal a hard landing, which is merely a euphemism for recession, reports CBSMarketWatch Reporter Rex Nutting.

The central bank has been pushing rates higher since July 1999 in an effort to dampen growth and keep inflation under control.

The overall economy, which was speeding along at an annual growth rate of 5.6 percent in the spring, slowed to just 2.7 percent growth in the summer.

The slowdown has taken its toll on Wall Street, where soaring stock prices have lost altitude wth investors worrying about the impact weaker economic growth will have on corporate profits.

The 5.5 percent decline in durable-goods orders last month was more than double the 2.1 percent drop that private economists had been expecting.

It was led by a sharp 15.8 percent decline in orders for transportation equipment, which fell $8.4 billion to $44.9 billion, reflecting cuts in demand for aircraft and parts.

Demand for primary metals, including steel, fell by 3.2 percent to $15.3 billion, the biggest decrease since December 1998. Steel companies have complained that the Clinton administration has not done enough to offset bankruptcies and layoffs in an industry that has been hurt by a flood of cheaper imported steel.

Orders for electronic equipment fell by 9.9 percent to $39.1 billion in October, mainly reflecting a drop in demand for electronic components.

Slightly offsetting the overall weakness was a 1.8 percent rise in demand for industrial machinery, which pushed demand in this category to $44.2 billion. This category had suffered a 4.8 percent decline in September.

Excluding the weakness in transportation, orders would have still been down but by a smaller 2.2 percent.

Military orders, which are highly volatile, rose a sharp 13.1 percent in October following a 17.5 percent September decline.

Demand for nondefense capital goods, considered a good barometer of business investment plans, fell 11.3 percent in October after a 5.4 percent increase in September.