Durables orders slip again
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November 23, 1999: 12:06 p.m. ET
Orders for big-ticket items slide 1.3% in October, countering expectations
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NEW YORK (CNNfn) - Orders placed with U.S. manufacturers for big-ticket items fell in October for a second consecutive month, reflecting the biggest drop in demand in almost two years for appliances, electronics and electrical equipment, the government said Tuesday.
Orders for durable goods -- items built to last at least three years -- fell 1.3 percent in October after declining a revised 1.9 percent in September, the Commerce Department reported. It's the first back-to-back monthly decline since February and March 1998. Analysts had expected a 0.4 percent gain.
The surprise two-month decline led some analysts to express optimism that the U.S. economy, particularly consumer spending, may be starting to slow. At the same time, most cautioned that the numbers are volatile and not necessarily an indication that demand for big-ticket items at home and abroad is beginning to wane.
"It's unclear whether the declines are related to year-end concerns or to a more general softening in manufacturing activity, but they do add evidence to the (Fed's) forecast for slower growth going forward," said Steven Wood, a senior economist at Banc of America Securities in San Francisco.
A volatile series
The report is considered to be one of the more volatile that Wall Street analyzes because of differences in how companies take in orders and fill them. A plant shutdown or weather-related delay in shipping can cause large swings in the monthly value of shipments compiled by Commerce, as was the case in September with Hurricane Floyd.
And Tuesday's report -- coupled with other indicators including the closely watched National Association of Purchasing Management's index of manufacturing -- "by no means indicates a meaningful slowdown in the economy," said Sherry Cooper, chief economist at brokerage Nesbitt Burns Inc. in Toronto.
New orders for electronic and electrical equipment -- which includes semiconductors, chips, computer motherboards and other parts and supplies -- plummeted 15.3 percent, the biggest decline since a 16.6-percent drop in July 1997. That followed a 1.1 percent drop in September.
Even that was greeted with skepticism by economists and analysts who pointed to the mid-September earthquake in Taiwan that shuttered chip plants and disrupted supply flows. That, combined with the rapid rise in chip prices that followed, may have prompted some companies to hold off placing their orders, analysts said.
Shipping delays
Companies such as Dell Computer (DELL) and Compaq Computer (CPQ), among others, have warned recently that their earnings will be affected by higher chip prices and by delays in shipping their final products because of delays in getting all the parts together that make up a computer.
Transportation equipment orders rose by 3.4 percent after declining 4.7 percent in September. Transport accounts for nearly one quarter of the value of monthly orders, so swings in demand affect the report strongly and add to its volatility.
Excluding transport-related products, orders declined 2.6 percent in October, the largest decline in a year, after falling a revised 1.1 percent in September.
Including transport but excluding defense products, orders fell 2.7 percent after sliding a revised 1.9 percent the month before.
Shipments of durable goods rose 0.7 percent in October after falling 1.9 percent in September. Unfilled orders for durable goods fell 0.5 percent in October after rising 0.3 percent in September.
Even with the second consecutive decline, overall orders in October were 6.1 percent higher than they were during the same month last year.
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Commerce Department
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