New orders for durable factory goods plunged 4.3 percent in September, the largest drop in five months and another indication to some economists that the economy is slowing from its pace earlier in the year, the Commerce Department said yesterday.
The negative report on factory orders -- which are used to determine plans of manufacturers of household and business products -- followed new estimates last week showing that the nation's economic growth from July through September slowed to a 2.7 percent annual rate from a 7.1 percent rate during the previous three months.
The Commerce Department also reported that new nondefense orders for capital goods -- a barometer of business expansion plans -- rose 2.3 percent in September following declines the previous three months. However, the level of capital goods orders in September was still below the level in July.
Commerce Secretary Malcolm Baldrige blamed the drop in new factory orders on the automobile workers' strike against General Motors Corp. last month and a 22 percent drop in orders for defense goods, generally a volatile category. Other economists also said that the brief automobile strike had a large effect, but said that the new orders report was weak anyway.
Without including autos and other transportation orders, durable goods orders declined 0.9 percent during the month, following a rise of 0.6 percent in August.
"After five quarters of rapid recovery, the economy has settled back to moderate growth," Baldrige said. "A rebound of auto production, further modernization and expansion by businesses, and the defense buildup should lift durable goods orders this month, signaling continued growth ahead."
Economists don't agree on what the latest numbers mean.
One large group of prominent economists said they expect growth to slow to the point that the unemployment rate may rise for a quarter or two in what is called a "growth recession."
Still other economists said that yesterday's Commerce Department report, in conjunction with other economic statistics, points to an economy struggling to make the transition from swift growth to a more moderate, noninflationary expansion. They contend that the economy merely has taken a pause before growth rebounds.
The decline in durable goods orders in part reflects a slowdown in consumer demand during the summer, economists said. New orders for household durable goods such as furniture, household tools and appliances declined 1.0 percent following a 2.2 percent decline in August.
A slowdown in consumer spending affects other business purchases of machinery, electrical components, transportation and communications equipment. If consumers don't buy goods, factories won't buy products to expand.
"The economy is going into a transitional phase, from rapid growth to much slower growth," said Steven Wood, an economist with Chase Econometrics. "Now part of the problem is trying to read into this whether the economy will grow or fall into another recession. I still think the economy has enough strength. The economy can muddle through."
Because of the slowdown in consumer spending, business inventories have begun to accumulate. In the next three months, businesses will not attempt to restock their shelves as quickly as they did in the beginning of the year when consumer spending was greater, economists said.
Because of slower inventory buildup, some plants may lay off a few workers or use them for fewer hours, Wood said.
"There is not a recession on the horizon at all," said Donald Straszheim of Wharton Econometrics. The economy's future doesn't look as gloomy as some economists have claimed, because consumer spending and family incomes are up, Straszheim said. He added that interest rates are creeping downward and people should begin buying more cars now that automobile production has picked up.