Durable-goods orders drop in November

Friday, December 26, 2003

WASHINGTON -- America's factories saw orders for big-ticket goods drop by 3.1 percent in November, the largest decline in more than a year, raising new questions about how firm a grip manufacturers have on their own fragile recovery.

The drop reported by the Commerce Department Wednesday in orders for "durable goods" -- costly manufactured items expected to last at least three years -- came after a brisk 4 percent advance in October and a solid 2.2 percent increase in September.

The 3.1 percent decrease was the first decline since August and the largest since September 2002, when durable-goods orders fell by 6 percent.

The performance in November was considerably weaker than economists were expecting. They were forecasting a 0.6 percent rise. The weakness was broad based, with cars, communications equipment, computers and machinery among the categories showing a drop in orders last month.

Although economists were disappointed, they said they believe the drop in durable-goods orders in November was just a short-lived, one-month rough patch rather than a signal of troubled times ahead for the nation's manufacturers.

"It does point out that while manufacturers have made significant gains, manufacturing is still very fragile and conditions could change quickly. But there is nothing that happened in November that would suggest that the declines would continue," said Mark Zandi, chief economist at Economy.com. "All signals point to continued improvement in business investment."

Zandi said he expects durable-goods orders to bounce back in December and that those numbers would be examined closely by economists.

On Wall Street, the weaker-than-expected manufacturing report and the nation's first case of mad cow disease sent stocks lower. The Dow Jones industrials closed down 36.07 points at 10,305.19.

In other economic news, new claims for unemployment benefits dipped last week by a seasonally adjusted 1,000 to 353,000, the Labor Department said in a report that suggested the pace of layoffs is stabilizing.

New-home sales declined by 2.4 percent in November to a seasonally adjusted annual rate of 1.08 million, the Commerce Department said in another report. The followed a 2.5 percent decrease in October. Even with the recent declines, new-home sales are on track to set a record high for all of 2003, economists say.

On the manufacturing front, the factory sector was hardest hit by the 2001 recession and has struggled since then to get on a recovery path. Manufacturers have lost 2.8 million jobs since July 2000, the month factory employment peaked in the last economic expansion.

Wednesday's durable-goods report was inconsistent with a string of other economic reports in recent months that have suggested that the manufacturing sector may truly be on the mend.

Excluding orders for transportation equipment, which can swing widely from month to month, orders for all other big-ticket goods declined by 3.7 percent in November, the largest decrease since June 2002.

Orders for communications equipment plummeted by 40 percent last month, erasing all of the 19.4 percent gain in orders seen in October. Orders for computers dipped by 0.3 percent in November, on top of a 0.8 percent drop the previous month.

Orders for cars and parts went down by 1.2 percent last month, following a 0.5 percent decline. For machinery, orders fell 0.9 percent, compared with a 3.1 percent advance in October. Orders for primary metals, including steel, dropped by 2.6 percent last month after a 9.5 percent rise in October.

The Federal Reserve at its last meeting of the year in early December opted to hold a key short-term interest rate at a 45-year low of 1 percent and suggested it may stay near rock-bottom levels for some time. Super low short term rates might motivate consumers and businesses to spend and invest more, thus boosting economic growth.

The economy grew at breakneck 8.2 percent annual rate in the third quarter, the best performance in nearly two decades. Economists believe the economy slowed in the current quarter, with estimates ranging from a pace of at least 4 percent to slightly above a 5 percent rate in the current quarter -- which would still represent a healthy clip.

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