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Strong Gain In Orders Surprises Reports Suggests Economy Remains On `Solid Footing’

Sat., Feb. 25, 1995

Factory orders for interest-sensitive durable goods rose in January for the third straight month, led by bigger demand for industrial machinery and equipment. Analysts said talk of a dramatically slower economy may be premature.

Durable-goods orders advanced 0.6 percent last month, a strong gain but a slower pace than at the close of last year, the Commerce Department said Friday.

“The economy is on solid footing and we’ll continue to see strong growth in the early part of this year,” said economist Michael Moran of Daiwa Securities America Inc. “It’s slower than last year but still a fine performance.”

Testifying before Congress this week, Federal Reserve Chairman Alan Greenspan hinted at lower interest rates if the economy cools. The remarks helped spark a strong stock market rally that sent the Dow Jones industrial average past 4000 Thursday for the first time.

The blue chip index closed moderately higher Friday after slipping earlier in the day and bond prices gained due to a late rally.

The new durable-goods figures “are extremely significant as they suggest that the slowdown in the manufacturing sector … may not be as rapid as market participants have been hoping for,” said economist Marilyn Schaja of Donaldson, Lufkin & Jenrette Securities Corp. in New York City.

The Commerce Department said orders for items expected to last at least three years - everything from washing machines to tanks - totaled a seasonally adjusted $163.1 billion, up $1 billion from December.

Orders climbed 1.8 percent in December - revised upward from a 1.5 percent earlier estimate - and soared 3.4 percent in November.

While the January advance surprised analysts, some insisted the slowdown has begun.

They noted that the rise in durablegoods orders was concentrated in business demand for computers and machinery, while signs point to slower growth for consumer goods.

“This is an affirmation of what Greenspan said,” said Roger Brinner of DRI-McGraw Hill, a Lexington, Mass., forecasting firm. “Consumer spending is leveling off.”

The Commerce Department said the January gain in durable goods orders was paced by industrial machinery and equipment, which surged 7.2 percent in the first advance for this category in three months.

A government survey Thursday said business investment in factories and equipment will slow substantially this year.

Highly volatile transportation goods plunged 5 percent last month, as demand for automobiles, ships and trains all fell. Excluding transportation, durable-goods orders increased 2.5 percent after rising 0.4 percent in December.

The overall January gain also was held down by a 33 percent drop in orders for military goods. Excluding the defense category, orders rose 2.6 percent last month after slipping 0.6 percent in December.

Orders for non-defense capital goods excluding aircraft rose 5.8 percent in January after dropping 1 percent in each of the preceding two months. These orders often are a barometer of business plans to expand and modernize.

Unfilled orders rose 0.7 percent, the fifth consecutive increase. Shipments rose 0.8 percent, the third straight gain.

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