Durable-goods orders rise bigger-than-expected 2.6 percent in January

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Posted 9:48AM on Wednesday, February 27, 2002

WASHINGTON - Orders to U.S. factories for big-ticket goods rose a larger-than-expected 2.6 percent in January, suggesting the nation's battered manufacturing sector is edging toward a recovery. The solid advance in orders for durable goods -- costly manufactured items expected to last at least three years -- followed a 0.9 percent rise in December, the Commerce Department reported Wednesday. It was the third increase in the last four months. Many analysts had forecast a smaller, 1 percent rise in orders in January. Last month's strength was broad based with higher demand reported for cars, computers, semiconductors, machinery and metals. Manufacturers have borne the brunt of the recession, which began in March. To cope, factories have sharply cut production and let workers go. But Wednesday's report along with other recent economic data suggest that the industry may be on the mend after suffering through a long slump. The Federal Reserve recently reported that production at the nation's factories, mines and utilities dipped in January by just 0.1 percent, the smallest decline in six months. The Institute for Supply Management, meanwhile, reported stronger manufacturing activity for January. That's all promising news for the manufacturing sector, which has been mired in a 1½-year-long slump. Wednesday's report showed that new orders for transportation equipment rose 5.9 percent in January, after a 2.1 percent rise. Orders for cars grew by 4.3 percent and orders for airplanes went up 21.6 percent. Excluding transportation orders -- which can bounce around from month to month -- overall durable-goods orders increased by a solid 1.3 percent in January, the fourth straight monthly advance. Orders for computers and electronic products rose 2.2 percent in January, after a 3.7 percent rise. Semiconductors led the way with a 14.2 percent increase, on top of a 15.2 percent gain. The stronger demand for these orders was particularly encouraging. That's because a big cut in spending on such high-tech equipment has played a major role in the national economy's weakness. Orders for machinery rose 2.4 percent in January, after falling by 1.4 percent. Orders for primary metals, including steel, grew 2.8 percent, following a 0.3 percent decline. A weak spot: Orders for electrical equipment and household appliances fell by 5 percent in January, on top of a 3.2 percent drop. To revive the economy, the Federal Reserve cut short-term interest rates 11 times last year. But Fed policy-makers opted to leave interest rates unchanged last month, citing signs of a rebound. Many economists are hopeful that the Fed's aggressive action will set the stage for a recovery in the second half of this year. However, before manufacturers can fully recover, businesses will need to crank up investment again and foreign companies and consumers must increase their spending on American-made goods, which would boost U.S. exports, economists say. Economists continue to project that U.S. consumers won't dramatically cut spending in the months ahead despite a dip in consumer confidence in February. Consumer spending accounts for two-thirds of all economic activity and its strength during the slump is a main reason why the economy hasn't sunk deeper into a recession.