Return to VOXPOP INDEX

Third Drop in Factory Orders in 4 Months
From The Excite Web Portal.

Tuesday January 7, 10:48 AM EST

WASHINGTON (AP) — Orders to U.S. factories fell by 0.8 percent in November from the previous month as the nation's manufacturers coped with an economy that struggled throughout last year to gain solid footing.

The Commerce Department reported Tuesday that the decline in demand for manufacturers' products came after a 1.4 percent increase in October. November's decline marked the third drop in factory orders in the last four months and represented a weaker performance than the 0.6 percent decrease analysts were forecasting.

The report comes as President Bush — with an eye toward re-election in 2004 — was set to unveil a 10-year $674 billion package aimed at helping the lackluster economy. The package includes speeding up tax rate reductions, eliminating taxes on stock dividends and accelerating deductions planned for business equipment. Democrats offered a competing plan, which includes tax rebates, that would cost $136 billion in its first year.

A more forward-looking report released last week by the Institute for Supply Management said that manufacturing activity grew in December for the first time in four months, providing a dose of encouraging news for the sector.

Even with the encouraging news, manufacturing has been the weakest link in the national economy's recovery from the 2001 recession. Economic growth last year was uneven. Some sectors of the economy did well, notably a stellar housing market powered by low mortgage rates. But manufacturing struggled, shedding jobs amid sluggish demand.

On Wall Street, stocks were mixed. The Dow Jones industrial average was off 32 points, while the Nasdaq index was up four points in morning trading.

While consumers carried the economy all last year, the shoulders of business have been far less broad.

Companies haven't made big capital investments and haven't been in a rush to hire because their profits haven't recovered from the big hit they took during the recession, and they face economic uncertainities, including a possible war with Iraq.

A sustained turnaround in capital investment is considered a necessary ingredient to the economy's return to full throttle as well as the manufacturing sector's return to full health, economists say.

In November, orders to factories for transportation products, including cars and airplanes, fell 1.9 percent from the previous month, following a 1.8 percent increase in October.

Excluding transportation orders, which can swing widely from month to month, factory orders went down by 0.7 percent in November, the biggest decline since June.

Orders for machinery, computers, household appliances and electrical equipment all saw declines in November.

For "nondurable" goods, such as food and clothes, orders dipped 0.1 percent in November, after a solid 1 percent rise in October.

The Federal Reserve cut interest rates once last year — in November by a bold half a percentage point, as an insurance policy against a slide into a new recession. Economists believe the Fed will leave rates unchanged at the current 41-year low of 1.25 percent at its next meeting in late January.

Economists believe that current rates are sufficiently low to motivate consumers to spend and businesses to step up investment, forces that would bolster economic growth.