Factory Orders Dive Amid Broad Declines

Devon Runyon of Omaha admires a John Deere lawn tractor at the Council Bluffs Home Show at Mid-America Center, in Council Bluffs, Iowa, Saturday, March 3, 2007. Orders to U.S. factories fell by the largest amount in 6¿ years in January, reflecting widespread declines across a number of industries. The Commerce Department reported that total orders dropped by 5.6 percent in January, the biggest decline since July 2000, a period when the economy was slowing sharply in advance of an actual recession which began in 2001. (AP Photo/Nati Harnik) (Nati Harnik - AP)

WASHINGTON -- The economy is still caught between slowing growth and stubborn inflation pressures, new government reports showed Tuesday.

Labor costs, boosted by bonuses to high-income workers, soared at the end of last year, raising inflation worries, while factory orders plunged in January by the biggest amount in 6 1/2 years.

The reports, analysts said, highlighted the difficulties the Federal Reserve faces as it is confronted by the opposing forces of slowing growth and rising inflation.

The Labor Department reported that productivity, the amount of output per hour of work, rose at an annual rate of 1.6 percent in the October-December period last year, just about half of the original estimate.

But the cost of the labor needed to produce each unit of output soared by 6.6 percent, far higher than the 1.7 percent initial estimate and well above the 3.2 percent increase Wall Street was expecting.

The worry is that the combination of lower productivity and higher wages would make inflation worse and keep the Fed from cutting interest rates even though certain sectors of the economy such as housing and manufacturing have been hard-hit by the current economic slowdown.

The Commerce Department reported that factory orders dropped by 5.6 percent in January, the biggest decline since July 2000, when the economy was slowing sharply in advance of an actual recession that began in 2001.

The government said orders for big-ticket durable goods plunged by 8.7 percent, even bigger than the 7.8 percent drop originally reported a week ago. That initial report had jolted investors and contributed to last week's 416-point one-day drop in the Dow Jones industrial averages.

Wall Street, however, took the new reports in stride. Stocks rebounded as investors were encouraged by a recovery on world markets.

The Dow Jones industrial average rose by 157.18 points, after having dropped 581 points over the past week, to close at 12,207.59. It was the biggest one-day point gain since July 24.

The weakness in manufacturing was led by a 19 percent fall in orders for transportation products, reflecting a 6.7 percent drop in the struggling auto industry and a 60.2 percent plunge in demand for commercial airplanes. Demand was also down for primary metals, machinery and computers.

Orders for nondurable goods, items such as petroleum and food, fell by 2 percent in January after a 1.5 percent increase in December.