Durable Goods Orders Drop 6.4 Pct.
By JEANNINE AVERSA
.c The Associated Press
WASHINGTON (AP) - Demand for big-ticket goods in April took its biggest nose dive since late 1991, and consumer spending rose at its slowest pace in nine months, indicating yet again the speeding economy may be slowing a bit.
Orders to U.S. factories for costly manufactured goods fell 6.4 percent last month to a seasonally adjusted annual rate of $205.6 billion, pulled down by a record drop in demand for electronics, the Commerce Department said in one of two economic reports it released Friday.
Americans also pulled back somewhat in April from their generally free-spending ways, the second report showed.
Consumer spending, which accounts for two-thirds of economic activity and is the engine of the supercharged economy, rose 0.4 percent last month. That was the smallest increase since July.
At the same time, American incomes, a category that includes wages, interest and government benefits, grew by a brisk 0.7 percent, the second month in a row in which income went up faster than spending.
Looking at both reports, ``We might conclude there is some fraying around the edges of the booming economy - that the economy is going from white-hot to perhaps simply red-hot,'' said Mark Zandi, economist with RFA Dismal Sciences. ``We might be seeing the first signs that the broader economy is throttling back a notch.''
The Federal Reserve has raised interest rates six times since June, including an aggressive half-point increase last week, trying to slow the economy and keep inflation from becoming a problem.
The increases are designed to raise borrowing costs and cool demand for big-ticket items such as cars and homes.
``Together, the reports provide unambiguous evidence of a slowdown emerging,'' said National Association of Manufacturers' economist Gordon Richards.
Friday's reports, economists said, suggested that the Fed's interest rate increases are beginning to bite. But analysts offered conflicting views as to whether the reports would discourage the Fed from pushing interest rates up again in June.
On Wall Street, stock investors, unconsoled by the reports' new signs of a slowing economy, focused instead on the prospect of higher interest rates. The Dow Jones industrial average closed down 24.68 points at 10,299.24. Bond prices finished higher.
The 6.4 percent decline in orders for durable goods - items expected to last at least three years - was the steepest since December 1991 and followed the first increase this year, a 4.5 percent rise in March.
A record 20.1 percent plunge in orders for electronics and electrical equipment, including semiconductors, circuit boards and home appliances, led April's decline.
Economists had trouble explaining the big drop in electronics orders and cautioned not to read too much into it given big month-to-month swings in the government's data. In February and March, orders for electronics rose sharply. Some analysts suggested shortages of electronic parts may have pushed prices up and discouraged companies from placing new orders.
Orders for transportation equipment, meanwhile, fell 6.7 percent, with the weakest demand reported for cars and auto parts. Excluding the volatile transportation sector, durable-goods orders fell 6.4 percent, the largest drop since July 1989.
Orders for industrial machinery, including computers and machine tools, rose 2.2 percent.
Even with last month's big drop, total durable-goods orders in the first four months of the year are running 7.6 percent higher than the same period a year ago, evidence of the economy's strength.
In the other report, the slower growth in spending helped lift the personal savings rate, or savings as a percentage of after-tax income, to 0.7 percent last month, the best showing since January.
Economists believe higher interest rates and stock market volatility were the main factors in Americans tempering spending from the frenzied pace seen in each previous month of 2000.
Consumer spending on durable goods such as cars fell 0.1 percent in April, while spending on nondurables, such as food, rose just 0.1 percent.
In March, Americans' incomes grew by 0.7 percent, while spending went up 0.6 percent, stronger than the government previously estimated.
On the Net: Durable-goods report: census.gov
Spending and income report: bea.doc.gov
AP-NY-05-26-00 1651EDT |
