No Order Turnaround Until Midyear?

By John S. McClenahen So serious is the inventory correction now taking place among U.S. manufacturers that new orders might not turn around and show significant growth until midyear. So suggests Jerry J. Jasinowski, president of the Washington-based National Assn. of Manufacturers. The U.S. Commerce Dept. reported yesterday that new orders for airplanes, electronic components, and other manufactured durable goods fell 6% in January to $202 billion. In contrast, new orders for manufactured durables increased 1.2% in December 2000. The decline "was most likely caused by the combination of continued high [U.S.] interest rates and a very strong dollar, which puts U.S. manufacturers of products like airplanes at a competitive disadvantage in the global economy," judges Jasinowski. Short-term prospects for the broad base of U.S manufacturers isn't great either, indicates a survey of 88 executives attending last week's NAM board meeting. Some 80% expect no growth or an actual contraction in their industries during the next two calendar quarters. They also anticipate capital investment and profits will be weak for 2001 as a whole. More than 75% of the NAM executives surveyed want chairman Alan Greenspan and his colleagues on the Federal Open Market Committee to lower the influential federal funds rate by another 50 basis points, to 5%, at the next scheduled meeting on Mar. 20. That's exactly what Maury Harris, an economic analyst at Stamford, Conn.-based UBS Warburg LLC, expects the Fed to do. But he's not as alarmed by the new order numbers as Jasinowski. He notes, for example, that January new orders for nondefense capital goods -- not including aircraft -- rose 6.5%, reversing a three-month slide. "The sharp recovery in nondefense capital goods orders [excluding aircraft] suggests that weakness is not overwhelming and [it] downgrades risks of [the FOMC making] an intermeeting move" to lower short-term interest rates, says Harris.

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