Defense Sector Strong but February Orders Dip 2.3%

WASHINGTON —  Orders to U.S. factories for manufactured goods dropped 2.3% in February, the second straight monthly decline, the government said Thursday in a report offering more evidence that the economy may be slowing.

Orders fell to a seasonally adjusted $230.7 billion last month after dropping 1.2% in January, the first back-to-back declines since orders fell for four consecutive months starting in February, 1986, the Commerce Department said.

Last month’s decline was in line with other government reports that showed slower growth in February and with widespread expectations that the economy will cool off in this seventh year of its record peacetime expansion.

“This confirms that February was a very weak month,” said economist David Wyss of Data Resources Inc. in Lexington, Mass. “It leaves unanswered the question of whether this is the start of the slowdown we’re expecting.”

The decline would have been even bigger were it not for a 22.4% surge last month in defense orders, which are subject to wide swings depending on when government contracts are signed.

Excluding the military, orders were down 3% last month.

The biggest negative factor in last month’s orders picture was a 7.2% decline in the transportation category, reflecting fewer orders for planes and cars.

But even excluding the volatile transportation area, all other orders were down 1.4% last month.

The economy grew a robust 3.9% last year, the best showing in four years, but analysts believe that the pace will be closer to 2.7% this year, with the slowdown most evident in the second and third quarters.

Factory orders had increased a healthy 9.7% in 1988 in part because of an export-led boom that showed signs of stalling late in the year.

The back-to-back declines in orders during the first two months of 1989 may suggest that the Fed’s slowdown campaign is taking effect, Wyss said.

“The Fed’s been raising rates for a year now,” he said. “It’s about time we started to see it in the real growth (statistics).”

In the key category of non-defense capital goods, considered a good indicator of industry investment plans, orders dropped 8.2% in February to $37.1 billion after rising 2.3% in January.

Orders for “big ticket” durable goods, items expected to last three years or more, were down 3.3% to a seasonally adjusted $124.2 billion after dropping 2.8% during the previous month.

Declines were recorded in nearly all major industries, including a 3.2% drop in orders for primary metals, with the steel industry accounting for much of that decline.

Demand for non-durable goods was down 1% to $106.5 billion last month, with the largest decreases coming in orders for chemicals and rubber and plastics products.

Shipments of manufactured goods were down 1.7% to a seasonally adjusted $227.6 billion in February. It was the biggest decline since March, 1986, when shipments were down 2.4%.

FACTORY ORDERS

Orders to U.S. factories for manufactured goods dropped 2.3% in February to a seasonally adjusted $230.7 billion.

Source: Department of Commerce