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Durable-Goods Orders Jump Past Predictions

Economy: Gain of 1.4% contrasts with recent signs of slower growth, raising concern over interest rates.

May 29, 1997|From Associated Press

WASHINGTON — Orders to U.S. factories for big-ticket durable goods posted a larger-than-expected gain in April, renewing concerns that more interest rate hikes may be needed to keep the economy from overheating.

"The general drift is clearly to the upside," said economist Stephen S. Roach of Morgan Stanley & Co. in New York. "That's consistent with a lot of other indications that we're getting . . . that growth remains extremely solid in the U.S. economy."

"The direction of the move was expected, but the magnitude will undoubtedly raise some eyebrows," said Oscar Gonzales, an economist for John Hancock Financial Services in Boston.

Orders increased 1.4% to a seasonally adjusted $175.6 billion, up from $173.2 billion in March and the third advance in four months, the Commerce Department said Wednesday. The gain was larger than the 1% increase that many analysts had predicted.

At the same time, the department said the 2.2% March decline was not as steep as the 2.6% drop it previously estimated.

Orders for durable goods--items such as appliances and aircraft that are expected to last more than three years--are a key gauge of the nation's manufacturing strength.

The stronger data contrast with other recent signs that economic activity might be slowing enough to keep inflationary pressures under control without the Federal Reserve Board having to boost interest rates again.

After nudging a key short-term rate up a quarter of a percentage point in March--the first increase in two years--Fed policymakers left it unchanged at 5.5% at their latest meeting last week.

But, Roach said, "as the economy continues to firm up, they will have no choice but to tighten and may come to regret not moving in May."

The manufacturing economy "tends to take its cue from the consumer sector," he said. "Given the surge in consumer confidence and incomes, I fully expect there will be further increases in durable-goods orders and manufacturing production. This is just a hint of more growth to come."

Wall Street's reaction to the report was mixed, with blue-chip stocks turning lower after setting two consecutive records and smaller-company stocks pushing some indexes to new highs.

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Durable Goods

New orders, in billions of dollars, seasonally adjusted:

April:75.6

Source: Commerce Department

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