Factory orders jump 5.9 percent in July By JEANNINE AVERSA, AP Economics Writer

Factory orders jump 5.9 percent in July By JEANNINE AVERSA, AP Economics Writer
1 minute ago



WASHINGTON - Factories saw orders for big-ticket goods jump 5.9 percent in July, the most in 10 months, an encouraging sign that many manufacturers are holding up to the stresses caused by a housing slump and a credit crunch.

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The Commerce Department reported Friday that the sizable increase in new orders for "durable" goods followed a 1.9 percent rise in June. Durable goods are costly manufactured items expected to last at least three years.

The fresh barometer of manufacturing activity was better than economists were expecting; they were forecasting a 1 percent increase. Gains were widespread. Orders went up for machinery, automobiles, metal products, airplanes and communications equipment. That blunted a drop in demand for computers, as well as electrical equipment and appliances.

The 5.9 percent increase posted in July was the most since September, when overall manufacturing orders went up 8.8 percent.

The pickup in demand for manufactured goods comes against a backdrop of a growing global economy, which has produced a bigger appetite for some U.S. exports.

Friday's manufacturing report offered a spot of relief from recent turbulence on Wall Street, which has darkened investors' feelings about the nation's financial prospects.

Fears that the worsening housing slump and credit crunch could hurt the economy have gripped Wall Street investors in recent weeks, causing stocks to swing wildly.

"The downside risks to growth have increased appreciably," Fed Chairman Ben Bernanke and his colleagues concluded on Aug. 17. It was a much more sober assessment than they had offered just 10 days earlier when they met to examine economic conditions and interest rates. Against this backdrop, the central bank sliced the rate it charges banks for loans, a narrowly tailored move aimed at propping up sagging financial markets.

If problems persist, the Fed could opt for more aggressive action: reducing an important interest rate, called the federal funds rate, on or before Sept. 18, the Fed's next regularly scheduled meeting. The Fed hasn't cut this rate in four years. It is the Fed's main tool for influencing overall economic activity.

The funds rate, the interest banks charge each other on overnight loans, has stayed at 5.25 percent for more than a year. A cut to the funds rate would bring lower interest rates for millions of people and businesses.

In the manufacturing report, orders for automobiles rose 9.8 percent in July, the most since January 2003. Demand for primary metals, including steel, increased 7.9 percent, the biggest rise since July 2004. Orders for communications equipment soared 20.7 percent, the most since March 2006. Demand for airplanes for commercial use rose 12.6 percent. Airplane orders for defense purposes increased 15.8 percent in July.

Demand for computers, however, dropped 4 percent in July and orders for electrical equipment and appliances fell 1.2 percent — two weak spots in an otherwise strong report.

Overall, the figures suggest that capital spending by businesses is weathering the financial storm so far. Credit problems, however, worsened in August, so upcoming reports on manufacturing will offer more insight into companies' spending.

Spending by businesses and consumers is a key ingredient to the country's overall economic health.