Orders for Big-Ticket Items Rise, Indicating Recovery Is on the Way
By JON E. HILSENRATH
Staff Reporter of THE WALL STREET JOURNAL
In a report giving more weight to expectations that a recovery is under way, the Commerce Department said orders for big-ticket manufactured goods rose in January for the third time in four months and that orders of computers, semiconductors and other high-tech goods increased for the fourth straight month.
Overall durable-goods orders rose by 2.6% in January after a revised 0.9% increase the month before.
Economists are paying close attention to changes in these orders for two reasons. First, such fluctuations are widely considered a leading indicator of activity. Second, manufacturers have been especially hard hit by the collapse in business spending on equipment and inventory during the last 18 months. A bottom in orders could be seen more broadly as a sign that businesses are thinking about investing again after the long retrenchment.
Few sectors are in greater need of a turnaround than technology, which underwent a massive retrenchment in late 2000 and throughout most of 2001. By January, technology producers reduced their inventories, relative to sales, to the lowest level in more than a year and well below levels that prevailed throughout much of the 1990s. The sector is still very far from being in full-recovery mode; shipments are down more than 20% from a year ago. But economists say it appears to have a base to build on.
"This says that the inventory situation has largely been cleaned up within this industry," said John Ryding, an economist with Bear Stearns Co. in New York. "It is very strong evidence that this sector has stabilized."
He estimates that coming off such a low base, orders for computers have risen at a 10% annual rate in the last three months; orders for communications equipment have risen at a 27% rate and orders for semiconductors have more than doubled.
Outside of technology, the January gains were fairly widespread. Orders for automobiles and parts rose by 4.3%. Orders for aircraft and parts jumped by nearly 22%, thanks in large part to orders from defense contractors. Meanwhile, shipments of metals such as steel, for example, posted their largest monthly increase since 1994.
Some economists warned that the January report wasn't as uniformly positive as it appeared on the surface. While the month's gain was stronger than expected, the government revised downward its estimate of orders in December. Second, a closely watched indicator of longer-term business investment still appeared fairly anemic. Orders of nondefense capital goods rose by just 0.5% in January and were revised lower in December.
Separately, the Commerce Department reported that new-home sales dropped by a much-larger-than expected 14.8% in January after rising by 3% the month before. While the report might have been skewed by several statistical quirks, economists said it did serve to suggest that the housing sector isn't nearly as robust as was indicated by a National Association of Realtors existing-home-sales report issued earlier in the week. That report showed sales of older homes surging in January.
Some economists said the January decline in new-home sales might have been affected by seasonal adjustments used by the Commerce Department. These adjustments account for the fluctuations in activity that occurs due to weather, holidays or other seasonal activity. Rick MacDonald, a senior economist with Standard & Poor's MMS Division, an economic research unit in San Francisco, said the seasonal factors in the January report might have overcompensated for a pickup in activity anticipated from December.
Marcia Robinson, a Commerce Department economist, said the seasonal factors probably weren't a big factor in the January report. But she added that the department has been seeing unusual fluctuations in recent months in the timing of when field representatives send in reports on new-home sales. This might be skewing the department's preliminary estimates of sales.
The upshot, says Mr. McDonald, is that "the housing sector is probably going to hold up at a relatively firm level for the rest of the year, but the upside is limited."
Write to Jon E. Hilsenrath at jon.hilsenrath@wsj.com
Updated February 28, 2002 |
