Order Backlog Signals Continued Economic Strength Report Spooks Markets, Triggers Another Stock Sell-Off

A growing backlog of unfilled orders at U.S. factories is the latest evidence the economy’s brisk momentum will carry into the spring and that more interest-rate increases are needed to tame inflation pressures.

For the sixth consecutive month, new orders for manufactured goods piled up faster in February than factories could ship completed items to their customers, the Commerce Department said Wednesday.

The report helped produce another bad day on Wall Street by heightening concerns the Federal Reserve will soon follow up on last week’s quarter-point tightening in short-term interest rates.

The Dow Jones industrial average fell 94.04 points to close at 6,517.01, about 8 percent below its March 11 peak. The average fell as much as 111.41 points but partly recovered and narrowly avoided the third triple-digit drop in four trading sessions.

“We have a strong economy … and its momentum is going to continue into the spring,” said economist Carl Palash of MCM MoneyWatch in New York. “As a result, I see the Fed tightening two more times, on May 20 and also July 2.”

A growing overhang of unfilled orders suggests businesses will have to increase production and perhaps hire more workers to meet demand. If they can’t increase production or find qualified workers, that implies needed manufactured goods could become scarce and prices could rise.

“There’s no question that’s a red flag,” said economist Daryl Delano of Cahners Economics in Newton, Mass. “It’s bound to spook people who say there’s no inflation evident now but there’s evidence of bottlenecks developing down the line.”

Building on a strong 2.5 percent gain in January, new orders rose 0.8 percent in February to a seasonally adjusted $325.9 billion, a record high. Shipments rose 0.9 percent to $321.5 billion, the seventh gain in eight months.

Nevertheless, the backlog of unfilled orders rose 0.9 percent to $523.6 billion. That’s enough to keep factories busy for 2.94 months at the current pace of shipments, even if no new orders come in.

The Commerce Department said orders for durable goods - expensive items such as cars and computers intended to last for at least three years - rose 1.5 percent in February after shooting up 3.8 percent the month before. Nondurable-goods orders edged 0.1 percent higher after a 0.9 percent gain in January.