Big-ticket orders set record in Feb. Manufacturing data suggest need for even higher rates


WASHINGTON -- U.S. manufacturers' orders for big-ticket goods set a record last month, the government said yesterday in a report suggesting interest rates may have to rise even higher to cool an economy that's showing no signs of slowing.

Orders for durable goods -- expensive items intended to last three years or more -- rose a stronger-than-expected 1.5 percent in February after a revised 4.1 percent gain in January, Commerce Department figures showed.

"This is further confirmation that the economy is strong, and that [Federal Reserve Chairman Alan] Greenspan was fully justified" in boosting the overnight bank lending rate a quarter-point Tuesday, said John Williams, chief economist at Bankers Trust Co. in New York. "The Fed is now officially in a tightening mode and will remain that way until the economy slows."

February's strongest gains came in orders for communications and electronic components. The overall rise, which exceeded analysts' expectations of only a 0.1 percent gain for the month, came even though aircraft and motor vehicle orders fell.

As new orders rose, manufacturers had trouble meeting demand, the government report showed. Unfilled orders climbed 1.1 percent last month, the ninth increase in 10 months.

"That means manufacturers will have to work harder, which could cause bottlenecks and price increases," said James Padinha of, a Wyoming market analysis firm.

The benchmark 30-year U.S. Treasury bond fell yesterday on the news of U.S. growth. Investors viewed it as a sign Fed policy-makers may push up the overnight bank lending rate again. U.S. central bankers raised the rate a quarter-point Tuesday to 5.50 percent, the first change since a quarter-point cut in January 1996. The 30-year bond fell 3/16, pushing up its yield nearly 2 basis points to 6.98 percent.

The Dow Jones industrial average, after falling as much as 28 points in the morning, rose 4.53 points to close at 6,880.70.

The dollar, buoyed by prospects for higher yields in the United States, rose 0.46 yen to 124.10 yen; it was little changed at 1.688 German marks.

February's increase in new orders, to $178.3 billion, topped a record $175.8 billion set in January. In the first month of the year, orders rose a revised 4.1 percent.

Economists caution that discerning trends from month-to-month shifts in factory orders can be difficult, since they're heavily influenced by large changes in orders for commercial jetliners and military weaponry.

Excluding the often-volatile category of transportation equipment, durable goods orders rose 3.1 percent to a seasonally adjusted $137.5 billion during February, also the highest level on record, Commerce said. Excluding military hardware, orders increased 1.5 percent last month.

The aviation industry, led by Boeing Co., continues to provide a source of strength for the economy. Boeing will produce 40 airplanes a month in the fourth quarter of this year, its highest output ever. The world's largest commercial airplane maker took orders for 717 new aircraft last year, up from 346 in 1995 and 120 in 1994.

Other aspects of the durables report pointed to continued manufacturing strength, analysts said. Shipments of goods, a gauge of current demand, rose 1.4 percent in February after rising 1.1 percent a month earlier.

"In 'hat trick' performances, orders, shipments and unfilled orders were each up more than a percentage point over the last two months," said Kenneth Mayland, chief economist at KeyCorp in Cleveland. "Can there be any doubt that this economy is enjoying accelerating growth?"

Pub Date: 3/27/97

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