- The Washington Times - Wednesday, July 4, 2001

ASSOCIATED PRESS

Orders to U.S. factories rebounded in May, posting their best performance in nearly a year. Stronger demand for cars, industrial machinery and semiconductors led the way.

The Commerce Department reported yesterday that factory orders rose by 2.5 percent in May, following a 3.4 decline the month before.

The latest snapshot of manufacturing activity was better than many analysts were expecting. They had forecast that factory orders would rise by 1.5 percent in May. The advance was the largest since a 7.5 percent gain registered in June 2000.

"This rise in orders is quite encouraging and points to a fragile but emerging recovery," said Jerry Jasinowski, president of the National Association of Manufacturers.

To stave off recession, the Federal Reserve has cut interest rates six times this year. The most recent one, by a quarter-point, came last week. Each of the five others had been half-point reductions.

Manufacturers have been hardest hit by the economic slowdown, which began last year. To cope with flagging demand, companies have cut back production and laid off workers.

But recent reports offered signs that the economy may be improving.

The National Association of Purchasing Management on Monday said its key gauge of industrial activity rose in June, turning in its best performance in seven months.

Even with the improvement, the measure was at a level indicating that the manufacturing sector of the economy remained in recession.

Still, economists were heartened that the index regained some lost ground and were hopeful that the worst of the manufacturing recession may be over.

In yesterday's report, orders for transportation products registered the biggest increase, rising 3.5 percent, following a drop of 9.4 percent in April. Much of the gain came from stronger demand for automobiles and car parts, the government said.

Paul Taylor, chief economist for the National Automobile Dealers Association, said a lot of excess inventories of unsold cars and light trucks have been whittled, paving the way for increased production. Also, demand is being fueled by manufacturers' incentives, such as cash rebates and cheap financing for buyers.

Excluding the often-volatile transportation sector, factory orders jumped by 2.3 percent in May, the best showing in a year.

Orders for computers and electronic products increased 2.3 percent in May, after falling 13.7 percent in April. A huge 32.5 percent increase in orders for semiconductors was a major factor in the advance.

The increase in the computer and electronics sector should encourage economists. One of the reasons the Fed cited for cutting interest rates has been weak investment by businesses in computers and other high-tech equipment. The economic boom was fueled in part by strong spending in these areas.

Meanwhile, orders for industrial machinery rose 2.7 percent in May, after a 0.8 percent increase, and orders for primary metals, including steel, grew by 5.6 percent, following a decline of 2 percent.

Orders for electrical equipment and home appliances went up by 0.9 percent after being flat in April.

Shipments, a good sign of current demand, rose 2.6 percent in May, after falling by 2.4 percent in April.

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