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Factory orders surge
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July 6, 2000: 10:14 a.m. ET
May orders jump 4.1%, biggest monthly gain in more than seven years
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NEW YORK (CNNfn) - Orders placed with U.S. manufacturers posted their biggest jump in more than seven years in May as orders for electronics, chemicals and other durable goods surged, government figures released Thursday showed.
 Factory orders climbed 4.1 percent in May, the Commerce Department said, topping both the 2.9-percent increase forecast by analysts polled by Briefing.com and the revised 3.8 percent decline registered a month before. April's tally initially was reported as a 4.3 percent decline.
The report, combined with other figures from chain-store retailers indicating robust consumer spending, countered recent evidence that the economy, now in a record 112th month of uninterrupted expansion, is slowing down. The economy expanded at a 5.5 percent pace in the first quarter and is expected to slow to a 3.5-percent pace in the second quarter.
Nonetheless, while there still is forward momentum in manufacturing, "it appears to be less robust than earlier in the year," said Steven Wood, an economist with Banc of America Securities in San Francisco. "These data add to the mosaic showing a still-strong but more slowly expanding factory sector: good news for the Federal Reserve."
Not necessarily a trend
The monthly gain was the largest increase since December 1992. Excluding transportation equipment, orders increased 4.3 percent in May -- the largest since January 1980 -- after declining 3.4 percent in April. Orders for durable goods, initially reported as a 6 percent gain last week, were revised higher to 6.1 percent, while non-durable orders climbed 1.7 percent. Inventories rose a moderate 0.2 percent and unfilled orders rose 1 percent.
 The inventories-to-shipments ratio, which measures demand for factory-made goods, fell to a record low of 1.26 months from 1.28 months in April.
The Fed took a pass on raising interest rates at their meeting last month amid evidence that economic growth is slowing. The National Association of Purchasing Management last week reported that manufacturing activity eased for a fourth straight month in June, and other recent reports have indicated growth is beginning to taper off.
But Thursday's report only countered weakness in factory output the month before, and doesn't necessarily reflect a renewed surge in manufacturing activity or in consumer demand, analysts said. "It doesn't necessarily point to another increase in rates for the Fed," Wood said. Fed officials next meet Aug. 22 to discuss monetary policy and the direction of short-term rates.
Electronics orders surge
May orders were boosted by a 26.4 percent increase in orders for electronic and electrical equipment. It was the biggest increase in orders for those products since August 1997, when they surged 34.9 percent, Commerce said. Orders were higher for nearly every type of manufactured goods, both long-lasting durable items such as refrigerators and more quickly used non-durables such as paper and food products.
 Part of the reason manufacturing output is expected to taper off in the months ahead is higher interest rates, which have deterred consumers from laying down cash for items such as new cars, home furnishings and other durable goods. Higher rates make borrowing more expensive, encouraging people to save rather than spend.
If the slowdown continues, analysts expect unemployment will edge up, a situation that will alleviate potential inflation pressures by squeezing disposable incomes and reducing overall confidence -- a bad scenario for Main Street but a good one for Wall Street.
That's why Friday's employment report is seen as a crucial economic indicator for analysts and investors. Analysts surveyed by Briefing.com forecast the unemployment rate fell to 4 percent from 4.1 percent in May. Some 250,000 jobs are seen having been created during the month, after a gain of 231,000 in May. Average hourly earnings are forecast to have jumped 0.4 percent after a slight 0.1 percent gain. 
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