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Factory orders take big plunge in January

Associated Press
Published March 7, 2006

WASHINGTON - Orders to U.S. factories plunged by the largest amount in 51/2 years in January, reflecting a big drop in demand for airplanes.

The Labor Department reported that orders for manufactured goods fell 4.5 percent in January, the first decline after three consecutive gains, and the biggest drop since an 8.7 percent decrease in July 2000.

The weakness came from a dropoff in orders for commercial and military airplanes. Excluding the volatile transportation sector, factory orders posted a solid 1.6 percent increase, the best showing in five months. Analysts said this advance showed that manufacturing was doing well at the start of the new year.

Total orders for transportation products dropped 31 percent in January as demand for autos edged down 0.4 percent and orders for commercial aircraft fell by 68.3 percent. Orders for military aircraft dropped by 20.9 percent.

The big declines in aircraft orders were viewed as returning demand to a more normal level after huge gains in prior months.

Orders for durable goods, items ranging from cars to computers, recorded a 9.9 percent decline in January, a slight improvement from the 10.2 percent drop that the government initially estimated.

Orders for nondurable goods, everything from food to clothing to petroleum products, posted a 2.2 percent increase in January following smaller gains of 0.5 percent in December and 0.9 percent in November.

"The underlying strength evident in both durable and nondurable goods orders in recent months explains the momentum of the manufacturing sector," said Michelle Girard, an analyst with RBS Greenwich Capital.

On Wall Street, rising bond yields triggered a selloff Monday as persistent nervousness about the economy and interest rates motivated investors to take profits.

Government bonds tumbled for a fourth straight session, sending market interest rates higher and contributing to the broader decline in stocks. The yield - which moves in an opposite direction from price - on the 10-year Treasury note leaped to a 20-month high of 4.74 percent from 4.69 percent late Friday.

"It seems like the market is obsessing on this bond market fallout, which was somewhat precipitated by the move to raise (interest rates) in Japan," said Jack Ablin, chief investment officer at Harris Private Bank. "A lot of the fuel that has been used to invest in this bond market has been derived from "easy money' in Japan."

Economists think that the manufacturing sector, which was hardest hit in the 2001 recession, should show solid growth this year as many companies, bumping up against capacity constraints, boost their orders for equipment to expand and modernize.

Overall economic growth, as measured by the gross domestic product, slowed to an annual rate of just 1.1 percent in the final three months of last year. But analysts are looking for a sizable rebound in the current January-March quarter with some forecasting growth will top 5 percent at an annual rate.

Part of that strength is expected to come from manufacturing as companies step up capital investment.

[Last modified March 7, 2006, 01:14:20]

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