ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Thursday, April 3, 1997 TAG: 9704030018
SECTION: BUSINESS PAGE: B7 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: ASSOCIATED PRESS
The downside is that more interest rate increases may be needed to tame inflation pressures.
A growing backlog of unfilled orders at U.S. factories is the latest evidence the economy's brisk momentum will carry into the spring and that more interest rate increases are needed to tame inflation pressures.
For the sixth consecutive month, new orders for manufactured goods piled up faster in February than factories could ship completed items to their customers, the Commerce Department said Wednesday.
A growing overhang of unfilled orders suggests businesses will have to increase production and perhaps hire more workers to meet demand. If they can't increase production or find qualified workers, that implies needed manufactured goods could become scarce and prices could rise.
``There's no question that's a red flag,'' said economist Daryl Delano of Cahners Economics in Newton, Mass. ``It's bound to spook people who say there's no inflation evident now, but there's evidence of bottlenecks developing down the line.''
Increases in interest rates dampen demand and would give factories breathing room to catch up and whittle the pileup of unfilled orders.
Building on a strong 2.5 percent gain in January, new orders rose 0.8 percent in February to a seasonally adjusted $325.9 billion, a record high. Shipments rose 0.9 percent to $321.5 billion, the seventh gain in eight months.
Nevertheless, the backlog of unfilled orders rose 0.9 percent to $523.6 billion. That's enough to keep factories busy for 2.94 months at the current pace of shipments, even if no new orders come in.
The Commerce Department said orders for durable goods - expensive items such as cars and computers intended to last for at least three years - rose 1.5 percent in February after shooting up 3.8 percent the month before. Orders for nondurablegoods edged 0.1 percent higher after a 0.9 percent gain in January, with the greatest strength evident in paper products and chemicals.
Within durable goods, a big 7.1 percent gain in orders for communication and other electronic equipment more than offset a 4.1 percent drop in transportation equipment.
Industrial machinery and equipment rose 1.9 percent, the third consecutive gain. Fabricated metal products increased 2.1 percent, but primary metals such as steel fell 0.4 percent. Orders for capital goods advanced 6.9 percent in February after a 3.1 percent rise a month earlier.
LENGTH: Medium: 55 lines ILLUSTRATION: GRAPHIC: graph - Factory Orders APby CNB