- The Washington Times - Friday, August 4, 2000

Orders to U.S. factories exploded 5.5 percent in June, the largest jump in nine years, the Commerce Department reported Thursday. The data, with others on retail sales and unemployment claims, provided another indication that if the American economy is slowing, it is doing so fitfully and unpredictably.

A 42.2 percent increase in orders for transportation goods, particularly military aircraft, drove the increase in factory orders. Excluding this notoriously volatile sector, factory orders were up a much more modest 0.3 percent, consistent with overall trends in the 1990s.

But other recent data on overall economic growth, personal spending and the broader index of leading economic indicators have painted a much more complicated picture of the economy.

"All the statistics are showing very ambiguous trends, as ambiguous as I have ever seen," said Gordon Smith, an economist with the National Association of Manufacturers.

The nation's largest retailers reported Thursday they had a fifth consecutive month of lackluster sales in July as cool weather and higher gasoline prices depressed consumer spending. The data led many economists to conclude that consumers, already heavily indebted and realizing few gains from a largely stagnant stock market, are spending less even as businesses increase their outlays for for industrial equipment.

"The economy is throttling back as consumers feel the effect of higher interest rates and a stock market that has been moving sideways for most of the year," Mark Zandi, economist at the West Chester, Pa., consulting firm Economy.com, told the Associated Press.

Mr. Smith said that employment data, due out Friday, and information on productivity gains next week would help paint a clearer picture of the state of the economy. The Commerce Department will release the producer and consumer price indexes the best gauges of inflation in the next two weeks.

The Federal Reserve will decide Aug. 22 whether it needs to raise interest rates again in its efforts to cool the economy. The Fed has raised interest rates six times over the past 14 months in an effort to induce a more modest level of growth and stave off higher inflation.

If the upcoming data shows minimal employment gains combined with strong productivity growth, another interest rate increase would be unlikely, Mr. Smith said. But the current conflicting signals make any clear prediction impossible.

"So far, the chances of a rate increase are fifty-fifty," he added.

Last week's report that annual growth in the gross domestic product did not slow as expected but accelerated in the second quarter to 5.2 percent also complicated efforts to predict what the Fed might do. Most economists had expect a slowdown to 3.7 percent from 4.8 percent in the first quarter.

The 42.2 percent jump in demand for transportation equipment, which climbed to $68.8 billion, drove the increase in factory orders. The strength rested on a record 175.2 percent increase in orders for commercial aircraft and other aerospace equipment.

Orders for nondurable goods actually dropped 0.1 percent in June, after a 1.6 percent increase in May, with demand for chemicals, paper and tobacco products showing the largest decreases.

Durable goods, big-ticket items expected to last three or more years, climbed 9.7 percent, slightly revised from an advanced report last week that had put the gain at 10 percent. But it was still the biggest increase in durable goods orders in nine years.

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