U.S. Wage-Cost Index Rose 1% in Second Quarter; June Durables Gained 10%
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Top Financial News
Thu, 27 Jul 2000, 5:28pm EDT
U.S. Economy: Orders for Durable Goods Surged in June (Update1)
By Michael McKee, Siobhan Hughes and Vincent Del Giudice
Washington, July 27 (Bloomberg) -- U.S. factory orders for durable goods surged in June, lifted by record demand for aircraft and other transportation equipment as well as by business spending on such tools as computers, government figures showed.
Durable goods orders rose 10 percent last month, after a 7 percent gain in May, the Commerce Department reported. The increase was the largest in nine years and was paced by a record 43 percent rise in transportation orders. Aircraft excluded, orders for capital goods such as machinery and equipment grew 8 percent, the largest increase since July 1999.
Those productivity-enhancing investments will make it easier for companies to absorb rising payroll expenses and keep inflation in check during the record economic expansion, analysts said. Employment costs, which rose 1 percent in the second quarter after a 1.4 percent gain in the first, were up 4.4 percent from a year earlier, the Labor Department reported today. That was the biggest year-over-year gain in nine years.
``This rate of increase in employment cost growth is being largely matched by productivity gains,'' John Ryding, senior economist at Bear Stearns & Co. in New York. As a result, Federal Reserve policy-makers may be able to forgo an additional increase in interest rates when central bankers meet next month, he said.
A separate report from the Labor Department showed first-time claims for state unemployment benefits plunged 40,000 to a level of 272,000 in the week ended July 22 as auto factories reopened after temporary shutdowns. The decrease left the four-week average at 299,250, close to its average over the past three months.
Government securities rose as investors decided the reports could allow Fed policy-makers to hold the line on interest rates. The government's 10-year note rose more than 1/8 point, pushing down the yield 2 basis points to 6.00 percent. Stocks were mixed, with the Dow Jones Industrial Average up 70 points, or 0.7 percent, to close at 10,586.13, and the Nasdaq Composite Index down 145 points, or 3.7 percent, to 3842.24.
Employment Costs Rise
While the employment cost numbers may not support a Fed move when the policy-making Federal Open Market Committee meets Aug. 22, the report leaves room for concern that such expenses eventually could cause inflation to accelerate.
``Employment costs are not under control,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania.
The 4.4 percent year-over-year increase in employment costs was up from a 4.3 percent rate in the first quarter and from the 3.2 percent pace in the second quarter of 1999. It reflected a 5.3 percent year-over-year rise in the cost of benefits and a 4 percent increase in wages over the same 12 months.
``The trend would offer no relief to the Fed that compensation pressures are abating,'' said David Orr, chief economist at First Union Corp. in Charlotte.
Fed Watches Productivity
Fed Chairman Alan Greenspan suggested in testimony to Congress earlier this week that inflation won't become a problem as long as productivity increases offset the rise in compensation costs. U.S. worker productivity grew 3.7 percent in the first quarter compared with the same period a year ago.
``What you do not want to encourage are nominal increases in wages which do not match increases in productivity, because history always tells you that that is a recipe for inflation and for economic recession,'' Greenspan told the House Banking Committee.
The June increase in durable goods orders was the largest since orders rose 13.9 percent in July 1991, when the U.S. was emerging from a recession. Excluding transportation, orders for the whole range of durable goods including metals, components and capital goods, rose 0.8 percent, after a 7.1 percent increase in May.
Electronic Equipment Orders
Over the past three months, orders for non-defense capital goods outside of aircraft are up 42.2 percent, suggesting businesses continue to invest in ways to control costs even as worker compensation rises with unemployment near a 30-year low of 4 percent. Those goods include finished products such as metalworking machinery and turbines as well as computers and office equipment.
That's important, because the drop in jobless claims indicates the unemployment rate is likely to remain low in the months ahead, said Pierre Ellis, an economist at Primark Decision Economics in New York.
``It's a very strongly growing economy with a tight labor market,'' Ellis said. ``Productivity growth is very fast, so these kind of compensation increases can be tolerated. Not much more, but at least this level.''
Electronic equipment orders rose 0.3 percent in June after a 27.4 percent increase in May that was the largest in almost three years. Electronic goods include communications equipment, appliances and video equipment, as well as semiconductors, circuit boards, capacitors, resistors, coils and transformers.
Texas Instruments Inc., whose chips power almost two-thirds of the world's cellular phones, reported a 19 percent increase in sales for the second quarter, which ended June 30, reflecting growing demand for wireless devices and high-speed Internet connections.
Best Regards, J.T. |
