Factory Orders Tumble, Layoffs Surge
Monday November 4, 5:32 pm ET
By Caren Bohan
WASHINGTON (Reuters) - Orders to U.S. factories plunged in September and layoff announcements by American firms surged in October, according to reports on Monday that reinforced beliefs the Federal Reserve will cut interest rates.
The value of new orders to factories tumbled 2.3 percent in September to $318.06 billion after a 0.4 percent decrease in August, the Commerce Department said.
In a separate report, the outplacement firm Challenger, Gray and Christmas Inc. said planned job cuts announced by U.S. companies rocketed to 176,010 in October, a rate of more than 7,600 job cuts per business day.
The October figure marked the second highest number of layoff announcements this year, lower only than January's, and compared to a total of 70,057 announcements in September.
"The Challenger report underscores that businesses are continuing their efforts to cut costs," said Christopher Wiegand, economist at Salomon Smith Barney in New York.
"These data -- taken in concert with many other pieces of information, especially the payrolls numbers -- help to set the stage, we believe, for a 50-basis-point (half-percentage point) cut in interest rates by the Federal Reserve," he added.
The central bank's policy arm, the Federal Open Market Committee, meets on Wednesday to consider a possible change in interest rates. A large majority of economists expect an cut in borrowing costs at that meeting, with most analysts wagering on a quarter-point reduction.
Hopes for a rate cut buoyed stock prices on Monday, but an early rally lost some steam in the afternoon as news on U.S. preparations for war with Iraq hammered home investor worries about the geopolitical picture.
The Dow Jones industrial average posted a 54-point gain, up 0.6 percent at 8,572.
In a Reuters poll on Friday, 21 of 22 leading bond firms forecast a Fed cut. Six of those firms projected an aggressive half-point cut and 15 were expecting a quarter-point move.
Wiegand said the Fed has a strong case for a cut, especially after Friday's employment data -- a key report -- showed the economy lost jobs in October for the second month in a row and the unemployment rate crept higher to 5.7 percent from 5.6 percent.
SHORT PAUSE OR ANOTHER DOWNTURN?
Many economists said the data added to a picture of an economy that seems in danger of stumbling after nearly a year of a jagged recovery that has had trouble hitting its stride.
Growth seemed to hit an airpocket in September and October, and there are concerns that the economy could be headed for a second leg of last year's recession, in what economists call the "double-dip" scenario.
But several analysts said it is possible that some of the recent economic weakness could prove temporary. One factor that appears to be exacerbating it is business and consumer uncertainty amid the prospect of a U.S. war with Iraq.
"Clearly the economy has hit a snag," said Ken Mayland of Clearview Economics LLC in Pepper Pike, Ohio. "Things have definitely soured, and the question is, is this a temporary slowdown from which we will recover, or is it the beginning of the much-feared double-dip?"'
Mayland said his own view is that the lull is temporary and he said differing opinions among Fed policymakers on that issue should make for a vigorous debate at Wednesday's meeting.
Indeed, even within the factory data, there were some conflicting signals.
Even though the overall September orders number was grim, the 2.3 percent drop was not as steep as the 3 percent decline projected by economists in a Reuters survey.
Also, the declines were concentrated heavily in two well-known trouble spots of the economy -- airlines and communications -- and some categories such as nondurable goods actually showed improvement.
Orders for nondurable items, such as clothing, paper and chemicals, edged up 0.9 percent.
The key durable goods component of the report showed a 4.9 percent drop in September, in contrast to the 5.9 percent nose dive Commerce had originally reported.
Also, total factory orders excluding the volatile transportation sector actually rose by 0.6 percent.
Transportation orders plummeted 15.9 percent, largely due to a 46.3 percent drop in orders for civilian aircraft.
Orders for nondefense communications equipment plunged 39.3 percent.
September saw a 0.4 percent drop in orders for new machinery. Primary metals orders fell 0.7 percent.
The total factory inventory-to-sales ratio rose to 1.33 in September from 1.32 in August, signaling a higher backlog of goods that may leave less incentive for factories to ramp up production. |
