clock menu more-arrow no yes

Filed under:

Manufactures struggle during slowdown

WASHINGTON — Orders to U.S. factories fell 3.8 percent in January to their lowest level in 14 months, fresh evidence that manufacturers continue to struggle during the economic slowdown.

The Commerce Department reported Tuesday that the decline in factory orders, which followed a 0.6 percent increase in December, was led by a sharp drop in demand for airplanes, cars and other transportation equipment.

January's performance was slightly weaker than the 3.5 percent decrease many analysts were expecting. The decline pulled orders to a seasonally adjusted $366.5 billion, the lowest level since November 1999.

On Wall Street, stocks rose lifted in part by other economic news showing that growth in Americans' productivity, while slower, was still solid in the fourth quarter despite the sharp economic slowdown. The Dow Jones industrial average gained 91 points and the NASDAQ 80 in the first half hour of trading.

Orders for transportation equipment plunged 23.8 percent in January, reflecting widespread weakness. That followed a 12.4 percent gain in December.

Excluding the volatile transportation category, orders fell 0.3 percent, the third decrease in the last four months.

Orders for electronics and electrical equipment, including household appliances and communications equipment, declined by 6.3 percent on top of a 0.9 percent drop in December.

Seeking to prevent the faltering economy from skidding into a recession, the Federal Reserve cut interest rates twice in January, totaling a full percentage point. The rate cuts lower borrowing costs, a move designed to spur business investment and consumer spending, which would rev up economic growth. Many analysts believe the Fed will cut rates for a third time at its next meeting March 20.

Although manufacturers have been bearing the brunt of the slowdown, there was a bright spot in Tuesday's report. Industrial machinery orders, including those for computers and machine tools, rose 5.3 percent in January, the largest increase in a year. That followed a 3.2 percent decline in December.

In another report, productivity, a key measure of rising living standards, slowed in the fourth quarter to a 2.2 percent rate of growth, down from a 3 percent rate in the previous quarter reflecting the weakened state of the economy, the Labor Department said.

The revised fourth-quarter productivity figure was still a healthy gain and was a better showing than the 2 percent rate of growth many analysts were expecting. But it was slightly weaker performance than the 2.4 percent growth rate the government previously estimated and was the smallest increase since a 2.1 percent rate in the first quarter of 2000.

Gains in productivity are the key to rising living standards because they allow wages to increase without triggering higher inflation that would offset those higher wages.

The slowdown in fourth-quarter productivity reflected the fact that growth in the gross domestic product — the total output of goods and services — also slowed sharply to an annual rate of 1.1 percent in the fourth quarter, the weakest performance in more than five years. That was down sharply from rates of 5.6 percent and 2.2 percent in the second and third quarters, respectively.

Since productivity measures output per worker, when output growth slows as it did between the third and fourth quarters, productivity will also fall because the number of workers remained essentially steady during the two quarters.

Unit labor costs, a measure of inflation pressures, rose by a rate of 4.3 percent in the fourth quarter, according to revised figures. That was up from a 3.2 percent rate in the previous quarter and a bit higher than the 4.1 percent rate the government estimated one month ago.

The rise in fourth-quarter labor costs was the biggest since the second quarter of 1999, when costs increased by the same amount. Still, the fourth-quarter increase was not as strong as the 4.5 percent rate many analysts were forecasting.