Originally created 06/04/99

Factory orders drop 1.2 percent in April

WASHINGTON -- Orders to American factories for manufactured goods fell 1.2 percent, reflecting a big drop in demand for aircraft and other transportation products. But consumers remain on a buying spree with the nation's biggest retailers reporting better-than-expected sales in May.

The Commerce Department reported today that the decline in factory orders in April followed a 1.9 percent advance in March and was only the second decline in the past six months.

However, the weakness was confined to the volatile transportation sector. Excluding transportation, factory orders would have risen by 0.5 percent, posting the fifth increase in the past six months.

In a separate report, big retailers said that warmer weather in much of the country encouraged consumers to shop last month for everything from sundresses to patio furniture.

The big winners in May were specialty clothing chains, while department stores also fared well. Consumer spending has been the strongest sector of the economy, helping to keep U.S. growth robust despite overseas financial turmoil that has pushed one-third of the world into recession.

American manufacturers have been hardhit by the global currency crisis, suffering from a big drop in export sales and competition from a flood of cheaper imports coming into the country. Over the past year, more than 400,000 U.S. factory jobs have been lost.

However, many economists believe they are seeing signs of a turnaround, with orders starting to gain in recent months. A separate survey done earlier this week by the National Association of Purchasing Managers also reported strength.

Financial markets have grown jittery in recent days over concerns that with a rebound in manufacturing and other sectors showing continued strength, an expected slowing of overall growth this year may not occur.

If it does not, the Federal Reserve let it be known two weeks ago that it stands ready to raise interest rates to slow growth and keep inflation from becoming a problem.

But markets reacted positively to today's economic reports. In early trading, the Dow Jones industrial average was up 70 points.

In a third report today, the number of Americans filing new claims for unemployment benefits rose, but only a slight 4,000 to 305,000 last week. This level is still reguarded as one signaling extremely low unemployment.

The government will release its estimate of unemployment for May on Friday and many economists believe the figure will remain at 4.3 percent, near the lowest level in 29 years.

The Commerce report on factory orders showed that demand in transportation plummeted by 12.3 percent in April with the fall-off led by a $3.2 billion decline in orders for airplanes and parts. Orders for ships and military tanks were off by $1.3 billion.

The report showed that orders for durable goods, items expected to last three or more years, fell 2.1 percent, slightly less than a preliminary report last week that had put the decline at 2.3 percent.

Orders for non-durable goods dipped a slight 0.1 percent in April with declines in food and paper offsetting increases in textile products. Non-durable goods orders had been up 0.7 percent in March.

Orders for primary metals, including steel, showed an increase of 1.6 percent for April. The steel industry has been one of the hardest hit by the Asian crisis, suffering from a flood of cheaper imported steel.

Steelmakers have petitioned the government for the imposition of penalty tariffs on the imported products and have warned without the relief thousands more American workers will have to be laid off.

Orders for industrial machinery rose 3.6 percent in April, led by a huge 21.3 percent jump in demand for engines and turbines, the secong strong monthly increase in this sector.

Orders for electronic equipment rose by 0.5 percent with strong demand for electrical lighting and wiring equipment.


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