Factory orders dive amid broad declines
By MARTIN CRUTSINGER, AP Economics Writer 1 hour, 43 minutes ago
Orders to U.S. factories fell by the largest amount in 6 1/2 years in January, reflecting widespread declines across a number of industries.
The Commerce Department reported that total orders dropped by 5.6 percent in January, the biggest decline since July 2000, a period when the economy was slowing sharply in advance of an actual recession which began in 2001.
The government said that orders for big-ticket durable goods plunged by 8.7 percent, even bigger than the 7.8 percent drop that had been reported a week ago. That report, which increased worries about the economy's health, played a role in the 416-point single-day drop in the Dow Jones industrial average a week ago.
The report on factory orders, coupled with other data showing weaker-than-expected activity, have raised concerns that the current economic slowdown may be more serious than previously expected.
However, Federal Reserve Chairman Ben Bernanke told Congress last week that he had seen nothing in the latest reports to change the Fed's outlook for moderate growth this year.
The weakness in manufacturing was led by a 19 percent fall in orders for transporation products, reflecting a 6.7 percent drop in the struggling auto industry and a 60.2 percent plunge in demand for commercial airplanes. The airplane category, which is extremely volatile, had posted a huge increase in December, reflecting an unusually large of orders to airplane giant Boeing Co.
Demand was also down for primary metals, machinery and computers.
Orders for nondurable goods, items such as petroleum and food, fell by 2 percent in January after a 1.5 percent increase in December.
In other economic news, the Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 1.6 percent in the October-December period last year. That was about half of the 3 percent increase the government initially estimated a month ago.
Labor costs for each unit of output soared by 6.6 percent in the fourth quarter, far higher than the 1.7 percent increase initially reported and the 3.2 percent revision that Wall Street had been expecting. The combination of lower productivity and higher wages, if sustained, would raise alarm bells at the Federal Reserve about inflation.
The big revision in productivity reflected the big downward revision announced last week in total economic growth, as measured by the gross domestic product. The GDP expanded at a sluggish 2.2 percent annual rate from October through December, not the 3.5 percent growth rate originally reported.
With less output and the number of hours worked remaining the same, productivity for the quarter looked worse. The drop in output also meant that unit labor costs were higher.
It was the biggest quarterly increase in labor costs since a 9.1 percent surge in the first three months of 2006. Both gains were attributed in large part to big bonuses paid to high-income workers.
The Federal Reserve is closely monitoring productivity and labor costs to make sure that inflation pressures do not begin rising on a sustained basis.
Productivity is the key element needed for rising living standards. It allows businesses to pay workers with the wage gains financed by the increased output. Without productivity gains, businesses often have to resort to boosting the cost of their products to finance wage gains, a process that increases inflation.
Beginning in 1973, productivity slowed dramatically as the country went through a period of high inflation, triggered by a series of oil shocks.
However, beginning in 1995, productivity started to show much better gains as the economy benefited from the revolution in information technology.
For the year, productivity rose by 1.6 percent in 2006, the slowest annual increase in nine years.
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