Factory orders up, but retail data suggests economy still cooling

WASHINGTON - New orders to U.S. factories in May took their biggest jump in more than seven years. But a more up-to-date report showed many of the nation's largest retailers had sluggish sales in June, adding to signs that the economy's pace is slowing.

A big burst in demand for electronics helped push factory orders up by a larger-than-expected 4.1 percent in May to a seasonally adjusted $385.8 billion, the Commerce Department said Thursday.

It marked the biggest increase since December 1992 and follows a 3.8 percent drop in April.

Some economists believed the factory orders report suggested that the economy may not be slowing as much as some had expected. But others cautioned not to read too much into the May increase because the factory orders data can be volatile from month to month.

''Orders are still flowing into factories, but I would not take May's report as meaning the economy is taking off again,'' said Stuart Hoffman, economist with PNC Financial Services Group.

In another report, many retailers in June reported weaker-than-expected sales for the fourth consecutive month.

Soaring gas prices and some unseasonably cool weather were cited as the biggest factors dampening Americans' desire to shop in June. But analysts also said the Federal Reserve six interest-rate increases over the past year affected sales.

''Consumers took a breather,'' said economist Richard Yamarone of Argus Research Corp. ''These figures support the notion of a slowing economy,'' he said.

The Fed's rate increases are designed to make borrowing more expensive and cool demand for big-ticket items, a move aimed at slowing the economy and keeping inflation under control.

On Wall Street, the Dow Jones industrial average lost 2.13 points to close at 10,481.47 as investors worried that rising interest rates could hurt corporate profits.

Separately, the number of Americans behind on home mortgage payments declined to the lowest level in 28 years during the first three months of 2000, the Mortgage Bankers Association of America reported. Plentiful jobs and rising incomes have helped consumers keep up with payments, pushing down the delinquency rate to a seasonally adjusted 3.72 percent in the first quarter.

The retail sales report was consistent with other recent economic reports indicating that the Fed's rate increases are working to slow economic growth.

Wednesday, the Conference Board reported that its Index of Leading Economic Indicators - a key gauge of future economic activity - fell in May. And Monday, the National Association of Purchasing Management reported that the nation's manufacturing sector grew at a significantly slower pace in June.

Most of the strength in May's factory orders came from electronics and other electrical equipment. These orders, which fell sharply in April, rose by a whopping 26.4 percent, the largest increase since August 1997.

''The electronics sector was largely responsible for roughly two-thirds of the May increase in new orders and when electronics are excluded from the figures, new orders grew by a more stable 2.6 percent,'' said Dave Huether, economist for the National Association of Manufacturers.

Transportation equipment orders rose a solid 3.3 percent in May following a 6.3 percent drop the month before. Excluding transportation, factory orders grew 4.3 percent, the biggest jump since January 1980. Transportation data often is volatile because it includes such costly items as airplanes.

For all durable goods - big-ticket manufactured items expected to last at least three years - orders rose 6.1 percent in May, the strongest pace since December. In April, such orders fell 5.8 percent.

For nondurable goods, such as food and fuel, orders grew by 1.7 percent, following a 1.2 percent drop.

Orders for industrial machinery, including computers and machine tools, were unchanged in May, following a 3.6 percent gain the month before.

Shipments, a barometer of current production, rose 1.9 percent, the largest gain since April 1996.

In a third report, new claims for unemployment benefits fell by a bigger-than-expected 12,000 last week to 296,000, suggesting that employers are scrambling for workers.

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On the Net:

Factory orders report: http://www.census.gov/indicator/www/m3

Labor Department: http://www.dol.gov