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February 28, 2006 > Orders to U.S. factories for manufactured goods fall by largest amount in 51/2 years

Orders to U.S. factories for manufactured goods fall by largest amount in 51/2 years

by Martin Crutsinger

Orders to U.S. factories for big-ticket manufactured goods fell by the largest amount in 51/2 years in January as demand for commercial aircraft suffered the biggest setback in seven years, the government reported Friday.

The Commerce Department said that orders for durable goods, everything from computers to cars, fell by 10.2 percent last month, a much bigger decline than had been expected.

The weakness was led by a 68.2 percent drop in orders for commercial aircraft reflecting a falloff in sales at Boeing Co. after two very strong months. Analysts said the overall decline overstated the weakness in manufacturing because it was so heavily influenced by the volatile aircraft sector.

Excluding airplanes, cars and other transportation products, orders posted a solid 0.6 percent rise after an even larger 1.9 percent increase in December.

On Wall Street, the Dow Jones industrial average fell 7.37 points to close at 11,061.85 as investors pondered the implications of a terror attack against a Saudi Arabian oil processing plant.

Analysts said the demand outside of aircraft showed that manufacturing was doing well at the start of 2006.

"The U.S. economy is bumping up against capacity constraints in many sectors, and businesses, particularly non-manufacturing businesses, are stepping up investment spending," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "Durable goods will continue to lead the manufacturing expansion in 2006."

Joel Naroff, chief economist at Naroff Economic Advisors, said that the strength in manufacturing was just one more factor that could bolster the resolve of policy-makers at the Federal Reserve to keep raising interest rates to make sure inflation does not get out of control.

While the economy slowed dramatically to a growth rate of just 1.1 percent in the final three months of last year, economists are looking for a sizable rebound in the first three months of 2006, with some forecasting growth will top 5 percent at an annual rate.

Part of that strength is expected to come from manufacturing, which is expected to do well as businesses, bolstered by rising sales and strong profits, step up spending to expand and modernize.

Orders for non-defense capital goods, considered a good barometer of business investment plans, fell by 20 percent in January. However, most of that weakness reflected the drop in airplane orders. Excluding aircraft, non-defense capital spending was down a more modest 0.4 percent following a big 5 percent jump in December.

For January, total orders fell by $23.6 billion to $207.2 billion. The 10.2 percent decline was the biggest since a 14.2 percent drop in July 2000.

The 68.2 percent fall in commercial aircraft orders was the biggest plunge in this category since an 80.1 percent drop in December 1998.

Boeing took orders for 39 planes in January, a good showing for January but down from the huge 204 orders booked in the closing weeks of 2005. Orders for defense aircraft also fell in January, dropping by 22 percent.

Overall, orders for transportation products were down 31.2 percent to $54 billion. Orders for autos and auto parts fell by 3.3 percent following a 6.5 percent rise in December.

Orders for computers were down a sharp 11 percent in January while orders for machinery fell 2.5 percent.

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