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Factory orders soar
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February 3, 2000: 11:23 a.m. ET
December increase is nation's biggest in seven years, well above forecasts
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NEW YORK (CNNfn) - Orders placed with U.S. manufacturers rose at the fastest pace in seven years in December, a report released Thursday showed, suggesting demand for American-made goods both at home and abroad remained robust in the final month of last year.
Orders at U.S. factories jumped 3.3 percent, the Commerce Department said, well above the 0.6 percent gain economists had expected and the revised 1.4 percent jump registered the month before. November's orders were originally reported as a 1.2 percent gain. For 1999, factory orders rose 6.6 percent, the biggest annual gain since a 7 percent jump in 1995.
Inventory building ahead of the Y2K date changeover and demand from the seasonal holidays partially contributed to the upswing in orders, economists said. At the same time, strengthening demand abroad for American-made goods -- particularly from the Far East -- provided more evidence that the U.S. economy is running at an exceptionally strong pace.
"There is a clear improving trend in orders which provides support for the recovering manufacturing sector," said Steven Wood, an economist with Banc of America Securities in San Francisco. "Although some of the inventory building that occurred was likely Y2K related and will be reversed in the new year, the acceleration of both shipments and backlogs suggests that the manufacturing recovery has substantial staying power."
Surging demand for goods
For Wood and other economists, the message was clear: the U.S. economy is extremely robust and demand for American-made goods and services is on the rise -- both at home and abroad -- and likely needs to be tempered with more interest rate increases from the Federal Reserve down the road.
What's more, while other areas of the economy such as housing appear to be slowing -- the result of the Fed's recent rate increases -- the economy is still growing at a pace rapid enough to warrant more moves from the Fed. The Fed's policy committee Wednesday lifted short-term rates by a quarter point to 5.75 percent.
Click here for the Commerce Department's full report
"While the housing sector is slowing, almost all of its weakness will be offset by the improving factory sector," Wood said. "More interest rate hikes will be necessary to slow the economy sufficiently to alleviate the Fed's fears of building inflationary pressures."
Bonds, which are particularly sensitive to hints of economic growth and accelerating inflation, paid no heed to the numbers as investors clamored for what will be a shrinking supply of government debt securities. The benchmark 30-year bond surged 2-1/2 points in price, lowering the yield to 6.10 percent, the biggest single-day drop in more than two years.
Aircraft orders surge
Much of December's gains stemmed from an 80 percent surge in orders for
civilian aircraft. Orders for electronics and other electrical goods jumped 6 percent after registering an 8.4 percent increase the month before.
Orders for durable goods -- which include items such as cars and appliances meant to last at least three years -- jumped a revised 5.5 percent in December, up from the 4.1 percent increase initially reported about a week earlier. They gained 0.9 percent in November.
Orders for short-lasting non-durable goods posted a 0.5 percent gain after a 1.6 percent rise in November. Unfilled orders gained 2 percent in December following a 0.1 percent November increase. Inventories increased 0.2 percent after gaining 0.5 percent.
The inventories-to-shipments ratio, a measure of how much in goods comes off warehouse shelves, rang in at 1.28 in December, down from 1.29 in November. 
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