Durable goods orders rise 2.4%for largest gain in 8 months Domestic economy is 'taking the sting out of the Asian effect'

The economy

August 27, 1998|By BLOOMBERG NEWS

WASHINGTON -- Orders for big-ticket goods posted the largest gain in eight months in July, a sign that domestic spending is outweighing reduced overseas demand for U.S.-made products.

Orders for durable goods -- items ranging from appliances to computers to commercial aircraft that are expected to be used for several years -- rose 2.4 percent last month, topping June's 0.2 percent increase, the Commerce Department said yesterday. Excluding transportation, durable goods orders rose 3.0 percent in July, the largest gain in nearly a year.

"The strength of the domestic economy is definitely taking the sting out of the Asian effect" on U.S. manufacturing, said Suzanne Rizzo, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

"The U.S. economy is weathering this Asian crisis very well."

The unexpected rise in July orders reflected increased demand for commercial aircraft, industrial machinery such as computers, and electronics such as semiconductors, VCRs and televisions. Strength in these areas offset a drop in automobile orders due to the recent strikes at General Motors Corp.

While yesterday's report suggests that the U.S. economy is holding its own, signs that Asia's financial crisis is spreading to other emerging markets is raising concerns among investors about the profit outlook for U.S. companies. In addition, the consumer confidence index fell this month for the second time in a row, the Conference Board reported Tuesday, which could signal more subdued spending in the months ahead.

The Federal Reserve uses the durable goods orders as one of its gauges of the nation's factory conditions and consumers' appetite for more expensive items.

The increase in July durable goods orders was the third in the last four months and the largest gain since a 4.4 percent rise in November. The increase in goods excluding transportation was the largest since a 3.2 percent rise in August 1997.

The category covering electronic equipment -- which includes televisions, VCRs and refrigerators -- posted the strongest showing in July with a 12 percent gain, probably due to record-setting home sales.

"Housing is booming and that means all sorts of durable goods will be needed," said Cynthia Latta, an economist at Standard & Poor's DRI in Lexington, Mass.

Orders for transportation equipment increased 0.3 percent as demand for aircraft offset declines in automobiles, trucks and ships. In June, orders for transportation equipment fell 7.2 percent.

The drop in orders for autos was caused by the strikes at two GM parts plants in June and July. The strikes idled 26 of GM's North American assembly plants and more than 190,000 workers, costing the world's biggest automaker $80 million a day.

The Dow Jones industrial average fell 79.30 points, or 0.92 percent, to close at 8,523.35 yesterday. The Treasury benchmark 30-year bond was little changed to yield 5.42 percent.

Pub Date: 8/27/98

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