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August Gain in Factory Orders Sparks Interest Rate Worries

October 06, 1994|From Associated Press

WASHINGTON — Factory orders and shipments surged at the fastest rate in nearly two years during August, fanning fears that a booming economy will soon force interest rates higher.

The Commerce Department said Wednesday that factory orders, which help measure future production, rose 4.4% in August, the biggest increase since they rose 5.6% in December, 1992. Orders fell 2% in July.

Shipments, a measure of current production, did even better. They increased 4.5%, their best showing in 15 years.

"This is a lot stronger than expected. It's more evidence that manufacturing is strong. We can't dismiss it as a fluke," said economist Carl Palash of MCM Moneywatch in New York City. "The Federal Reserve is going to have to tighten credit one or two more times this year."

Factory orders have risen 11 times in the past 13 months.

They were expected to improve in August as auto makers reopened plants after closing for two weeks in July to retool for 1995 models.

But the August surge was broad-based, with orders for non-durable goods such as food, fuel and clothing climbing 2.5%, the 10th straight gain and the largest since August, 1990. Orders increased in all major industries except leather goods.

Jerry Jasinowski, president of the National Assn. of Manufacturers, insisted the gains were moderate.

"Manufacturing orders continue at a healthy pace that should yield growth of 2.5% in the third quarter," he said. "These numbers are not too strong and not too weak. We have the capacity for 3% growth without inflation."

The gross domestic product, which measures the total value of goods and services produced in the United States, increased at an annual rate of 4.1% in the second quarter, after a 3.3% rise in the first quarter.

The Federal Reserve Board is looking for slower acceleration, analysts say, and is now practically certain to increase short-term interest rates by another half percentage point no later than Nov. 15, when central bank policy-makers next meet.

The Fed has boosted rates five times since February, most recently on Aug. 16, when it pushed the rates that banks charge each other for overnight loans to 4.75%.

Excluding the volatile transportation component, factory orders rose 2.4% in August, the biggest increase since they were up 3.2% in December, 1992. Excluding military equipment, orders rose 4.4%, matching the overall gain.

Orders for both durable and non-durable goods totaled a seasonally adjusted $286.5 billion, up from $274.3 billion in July.

The backlog of unfilled orders declined 0.3% in August.

Factory Orders

Total new orders in billions of dollars, seasonally adjusted

August, '94: 286.5

Source: Commerce Department

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