Durable-goods orders unexpectedly rise 0.9% Fourth straight gain may point to growth in months ahead

October 29, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. factory orders for big-ticket goods rose in September for the fourth month in a row, the government reported yesterday, in a sign that rising demand could lead to stronger-than-expected growth in the months ahead.

"Recession talk seems a bit premature," said Mark Vitner, an economist at First Union Capital Markets Group in Charlotte, N.C.

Orders for durable goods, items made to last at least three years, unexpectedly increased 0.9 percent last month to $192.1 billion after rising 2 percent in August, Commerce Department figures showed. Analysts expected a 0.4 percent decline for September. And orders outside the often-volatile transportation category rose 2.6 percent last month to a record level after falling 2.2 percent in August.

September's gain, boosted by rising demand for electrical equipment and industrial machinery, led some economists to bump up their estimates for third-quarter economic growth because the increase in shipments was so strong.

"The report is at odds with the notion that factories are cutting back because of the global economic turmoil," said Michael Englund, chief economist at Standard & Poor's MMS in Belmont, Calif.

Shipments of nondefense capital goods rose in September for the first time in three months. That is significant because economists use that piece of the report to forecast spending on new factories and equipment in gross domestic product. The government is scheduled to release its first estimate of third-quarter GDP tomorrow.

What is more, orders for nondefense capital goods excluding aircraft rose 6.3 percent in September, the largest increase since a 7.7 percent gain a year ago.

Taking the increases in orders and shipments into account, Englund said third-quarter GDP probably rose at a 2.4 percent annual rate, up from his earlier estimate of a 2.2 percent pace. That is not enough of a change for Englund to alter his prediction that Federal Reserve policy-makers will cut the overnight bank lending rate a third time at their policy meeting Nov. 17. The main concern of central bankers is still the heightened risk aversion in U.S. credit markets, he said.

Still, economists caution it is difficult to discern trends from month-to-month shifts in factory orders, which are heavily influenced by volatile demand for commercial jetliners and military weapons.

Underscoring that point, orders for transportation equipment fell 4.4 percent in September after rising 17.6 percent in August. Civilian aircraft orders fell 45.5 percent in September, the biggest drop since December 1997, when they fell 71.5 percent.

A 5.4 percent gain in demand for electronic and other electrical equipment, including household appliances, and a 4.4 percent increase in orders for industrial machinery -- a category that includes computers -- led the overall September advance, Commerce Department statistics showed.

The durables report also showed unfilled orders, a gauge of pent-up demand, increased 0.1 percent during September after increasing 0.3 percent in August. Shipments of goods, a gauge of current demand, rose 1.5 percent after a 1 percent gain.

Pub Date: 10/29/98

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