Factory orders up 1.2 percent in December; worst may be over for manufacturing sector

Tuesday, February 5th 2002, 12:00 am
By: News On 6

WASHINGTON (AP) _ Orders to U.S. factories rose by 1.2 percent in December, with gains posted for semiconductors, household appliances and machinery.

The advance in factory orders reported by the Commerce Department Tuesday came after orders fell by 4.3 percent in November and suggests that the nation's battered manufacturing sector may see better days ahead.

Manufacturers have borne the brunt of the recession that began in March. To cope, they have sharply cut production, trimmed hours and laid off workers. Last year, factories shed 1.3 million jobs, or about 7 percent of their work force.

But Tuesday's report, taken with other recent data, indicates the worst of the recession may be over for manufacturers.

The Institute for Supply Management reported last week that its index of business activity rose to 49.9 in January from 48.1 the month before, another signal of improvement in the manufacturing sector, which has been mired in a 17-month long slump. An index above 50 indicates manufacturing growth.

Also last week, the government reported that durable-goods orders rose by a bigger-than-expected 2 percent in December.

Before manufacturing can fully recover, however, businesses will have to crank up investment again and foreign companies and consumers must increase their spending on American-made goods, which would boost U.S. exports, economists say.

On Wall Street, stocks struggled amid increasing uneasiness about the accuracy of corporate earnings. The Dow Jones industrial average was up 7 points and the Nasdaq was down 5 points in morning trading.

Tuesday's factory reports showed that orders for computers and electronics products rose by 3.1 percent in December, on top of a 0.8 percent gain the previous month.

Semiconductors posted a strong 12.7 percent increase, after falling by 3.7 percent in November, a good sign for the high-tech sector, which took a big hit when companies scaled back capital spending in response to the economic slump.

Orders for household appliances rose by 2.8 percent in December, following a 6.3 percent advance, and orders for electrical lighting equipment rose by 2.5 percent, after falling by 7.4 percent in November.

Orders for machinery increased 0.8 percent, on top of a 2 percent rise.

For transportation equipment, orders grew by 3.6 percent, after plunging by 20 percent the month before. December's increase was mostly due to orders for missiles and space equipment, the government said. Orders for cars dipped by 0.2 percent in December as free financing and other incentives waned.

Excluding the volatile transportation sector, which includes such expensive items as airplanes and military tanks, orders rose by a solid 0.8 percent in December. Orders for nondefense goods orders grew by 1 percent, the third increase in the last five months.

The Federal Reserve, citing signs of an economic rebound, left interest rates unchanged last week. The central bank cut short-term rates 11 times last year, pushing down the prime rate _ a benchmark for consumer and business loans _ to its lowest point since November 1965.

Many economists say those rate reductions will allow the country to return to a healthy rate of growth in the second half of this year.

Still, as evidence of just how much damage has been inflicted on the manufacturing sector, the Commerce Department said that for all of 2001 factory orders fell by a record 8.5 percent. That's the biggest drop since the government began keeping records using the current classification system in 1992. In 2000, orders rose by 7.1 percent.