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Durable Goods Orders Tumble 2.1% in Month

November 27, 1985|Associated Press

WASHINGTON — Factory orders for big-ticket durable goods fell a sharp 2.1% last month, the biggest decline since July, the government reported Tuesday.

The Commerce Department said the $2.2-billion drop in October marked the third month out of the past four that orders have declined. Orders fell 0.9% in September and 2.3% in July.

The declines, which left total orders at $104.4 billion in October, all stemmed from large drops in demand for military equipment. Defense orders plummeted 26.6% in October following a 21.1% September decline.

Without the big fall in defense, factory orders would have remained unchanged last month, and many analysts said this fact was a more accurate reflection of the economy at the present time.

"This report shows the economy is moving along at a pretty steady rate," said Cynthia Latta, senior financial economist at Data Resources Inc. "It doesn't indicate new weakness, but it doesn't indicate any pickup in underlying demand either."

For the first 10 months of the year, durable goods orders have been rising at annual rate of 3.7%, far below the 14.8% gain recorded in 1984.

Even more disturbing was a 7.4% drop in orders for non-defense capital goods in October. This category is closely watched for signals of industry intentions to expand and modernize production facilities.

Commerce Secretary Malcolm Baldrige said that non-defense capital goods orders have "grown very little this year," adding that with U.S. manufacturers facing intense competition from abroad it was imperative that government preserve the tax incentives industry needs for capital investment.

U.S. industry has been battered by a flood of foreign products with the resulting record trade deficits prompting growing calls for protectionist legislation in Congress.

Michael Evans, head of Evans Economics, said he believed that orders would rebound in some of the hardest-hit industry sectors such as machine tools and semiconductors in coming months.

He said there was an underlying strength in manufacturing that was being hidden by the volatile swings in the defense category.

Expect Renewed Strength

Analysts were not concerned about the two big declines in defense orders, saying defense will show renewed strength in coming months as the Reagan Administration's defense buildup continues.

Within the major industries, orders for transportation equipment were down a sharp 7.6%, with demand for aircraft, aircraft parts and shipbuilding all down.

Orders for machinery fell 4% in October, with a drop in demand for defense communication equipment accounting for nearly three-fourths of the drop.

Orders for primary metals such as steel rose 4.3%, only partially offsetting a 7.5% September decline.

Shipments of durable goods rose 3.1% to $106.9 billion in October. This was the biggest increase in shipments since a 4.1% gain in December, 1983.

Latta said the big pickup in shipments may have come from the start of deliveries of a new International Business Machines Corp. computer which had drawn heavy advance orders from businesses.

Building Contracts Jump

In another economic story, F. W. Dodge reported that contracting for new construction projects rose 2% last month to an annual rate of $238.1 billion, the highest yearly pace ever recorded, In September, contracts reached $233.7 billion, which was the previous record annual rate.

The Dodge index, which compares current new construction activity with 1977 as a base of 100, climbed to 169 in October, surpassing September's strong 166. Before September, the index of new construction contracting held steady for six months, hovering around 162.

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