Strong gains for factory orders, productivity | VailDaily.com
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Strong gains for factory orders, productivity

WASHINGTON – Orders to U.S. factories increased at a healthy pace in October, and third-quarter productivity shot up by the largest amount in two years.The two government reports Tuesday provided fresh evidence that the economy is bouncing back from the devastating Gulf Coast hurricanes and the late summer spike in energy prices.The Commerce Department reported that orders for manufactured goods rose by 2.2 percent to a seasonally adjusted $399.8 billion in October following a 1.4 percent September decline that was blamed on disruptions from the hurricanes and a strike at aircraft giant Boeing.Meanwhile, the Labor Department said the productivity of American workers, the biggest factor determining future living standards, raced up at an annual rate of 4.7 percent in the July-September quarter, the best showing in two years.The stronger increase in productivity, which was revised upward from an initial estimate of 4.1 percent, helped to push down labor costs, which fell by 1 percent in the third quarter, double the 0.5 percent decline initially reported.The improved productivity and falling labor costs should ease fears at the Federal Reserve that wage pressures will make inflation worse. Fed policy-makers, who meet next week, are expected to nudge interest rates up by a quarter-point, the 13th such move since June 2004.Rising productivity means that companies can pay their workers more because of increased output rather than having to increase the price of their products.The administration hopes that the recent good economic news will help lift President Bush’s job approval ratings, which have fallen to the lowest levels of his presidency because of the Iraq war and consumer jitters about the economy.White House spokesman Scott McClellan said the productivity increases over the past five years represented the fastest growth rate in this indicator since World War II. “More often than not, higher productivity means higher wages, something this president is very focused on,” McClellan said.Despite the strong productivity gains, income growth has lagged behind for middle and low-income workers, reflecting in part increased competition from low-wage countries as the U.S. trade deficit has soared to record levels.The increase in productivity to a 4.7 percent rate reflected the fact that total output in the economy – the gross domestic product – was revised upward last week to a growth rate of 4.3 percent, the best showing since early 2004. Economists said GDP growth probably would have approached 5 percent without the hurricanes.Many analysts said they were now revising higher their forecasts of overall growth in the current October-December quarter in light of the strength show in recent economic data including last Friday’s report that employment grew by 215,000 in November, ending a two-month hurricane-related lull.”The hurricanes were not that damaging because the economy’s momentum was so strong,” said Nariman Behravesh, chief economist at Global Insight, a private forecasting firm in Lexington, Mass.Behravesh said he had been forecasting GDP growth would slow to 3 percent in the final three months of this year, but now he expects the GDP will grow by between 3.5 percent to 4 percent with continued solid growth in the first half of next year.The 2.2 percent overall rise in factory orders reflected a 3.7 percent gain in orders for durable goods that was even better than a preliminary estimate of 3.4 percent made last week.The increase was led by huge gains in orders for military and commercial aircraft. Excluding transportation, orders for durable goods would have been up a smaller 0.6 percent.Orders for nondurable goods rose by 0.5 percent after having fallen by 0.8 percent in September.—On the Net:Productivity report: http://www.bls.gov/lpc/Factory orders report: http://www.census.gov/m3


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