Factory Orders Rise, Auto Sales Down

Orders to U.S. factories bounced back a bit in November, rising 1.7 percent as demand grew for airplanes, electronics and industrial machinery.

But the best year ever for auto sales in the United States ended with a whimper as a slowing economy pushed December sales down about 8 percent.

The Commerce Department reported today that total factory orders rose to a seasonally adjusted $377.6 billion, up from $371.3 billion the month before. Many analysts were expecting factory orders to rise by 1.2 percent.

The rise was not enough to recover the 4.0 percent decline in orders in October. That revised figure was weaker than the government had previously reported.

In another report, the Labor Department said new claims for state unemployment insurance rose last week by 16,000 to a seasonally adjusted 375,000, the highest point in more than two years and suggesting that employers’ demand for workers is waning.

It marked a larger increase than some analysts were expecting and the highest level since July 4, 1998, when claims were at 384,000.

Tough Winter Ahead For Automakers

Not wanting the economic slowdown to slip into a recession, the Federal Reserve, in a surprise move Wednesday, cut short-term interest rates by a bold, half a percentage point. The action is designed to lower borrowing costs and spur business investment and consumer spending, thus boosting economic growth.

But despite the Fed’s bold move, automakers are bracing for a rough winter, with sales far below the pace set last year. DaimlerChrysler said Wednesday it would idle several plants in January to cut inventories, following a similar move Ford announced a few weeks ago.

Overall, automakers sold 17.4 million cars, pickups, vans, minivans and sport utility vehicles last year, beating their record of 16.9 million set in 1999. But the major U.S. manufacturers — General Motors, Ford Motor and the Chrysler side of DaimlerChrysler — saw sales decline in 2000 by 2 percent, as foreign automakers boosted sales and grabbed a larger slice of the market.

“At least as far as the auto industry is concerned, we’re in a recession,” said Burnham Securities analyst David Healy. “How long it’s going to go on no one can really say.”

GM said its December sales fell 18 percent, with a 16 percent decrease in car sales and a 20 percent decrease in light truck sales. Among its U.S. brands, only the Saturn division saw sales rise.

Chrysler said its sales fell 15 percent in December, with cars down 25 percent and trucks down 11 percent. The troubled automaker ended 2000 with sales down 4.4 percent. The company said it would conduct one-week shutdowns at eight of its 12 U.S. and Canadian factories in January to cut inventories.

But the bad news did not touch several foreign automakers. Toyota said its sales were up 14 percent in December and 10 percent for all of 2000. Honda said its sales for the month were up 2.6 percent, while Mazda said its December sales were up 20.5 percent on the strength of its new Tribute SUV.

Nissan sales were down 5 percent in December, but up 11 percent for the year. All three Korean automakers reported large gains for the month and year.

Retail Sales Also Weak Meanwhile, treacherous winter storms, and the slowing U.S. economy also thwarted retailers’ hopes for a profitable December. Weak sales hit all retail segments and were the latest sign that the economy is cooling.

“On the whole, it was worse than expected,” Bank of Tokyo Mitsubishi economist Michael Niemira said today. “Everybody, with a few exceptions, felt the effect of a softer economy.”

Exacerbating the situation were ice and snow storms that hindered travel to stores and malls in the South, Midwest and Northeast during the month. Last year sales were also powered by spending on items to prepare for the year 2000.

The sales shortfalls are important because holiday purchases in November and December typically account for about 25 percent of a retailer’s annual sales.

The S&P Retail index was off 9.57 at 906.33 in morning trade. The index has a year high of 1052 and a 52-week low of 696.72.

Retailers that issued earnings warnings included discounters Ross Stores Inc. and Dollar Tree Stores Inc., casual apparel retailer Gap Inc., women’s apparel seller

Ann Taylor and upscale jeweler

Tiffany & Co. Inc.

No company was immune to the slowdown, not even discount powerhouses like

Wal-Mart Stores, Inc. and

Target Corp. which both reported sales that lagged expectations.

Wal-Mart, the world’s largest retailer, reported an anemic 0.3 percent increase in December same-store sales. The company said it now expects fourth-quarter same-store sales growth to fall short of its initial forecast of 3 percent to 5 percent.

The discounter also said its fourth-quarter earnings will come in above the 43 cents a share of a year earlier. Analysts polled by First Call/Thomson Financial on average have expected a 46-cent profit.

Target, the No. 4 U.S. retailer, said sales at its stores fell 0.1 percent, compared with its earlier expectations for sales growth of about 3 percent to 5 percent.

Sears, Roebuck and Co. said its same-store sales fell 1.1 percent in December and that it will close 89 underperforming stores in the first quarter. To cover the costs, Sears said it will take a fourth-quarter pretax charge of $150 million.

The company announced today it would close 89 underperforming stores amid a tightening outlook for retailers that caused its sales to fall slightly last month.

The move will cost about 2,400 Sears employees their jobs. Stores targeted for closing were mostly among Sears’ 2,100 specialty retail locations, include 53 National Tire and Battery stores and 30 hardware stores.

Gap reported sales at stores open at least a year fell 6 percent from a year earlier and cautioned that if the heavy discounting seen throughout the month continued, fourth-quarter profits could by cut by 3 cents to 5 cents a share. Otherwise, Gap said, the fourth-quarter profit forecast of 36 cents a share from First Call is “achievable.”

Fed Concerned Over December Slump The Fed said its actions Wednesday were taken in light of further weakening of sales and production, lower consumer confidence, higher energy prices and tighter credit conditions.

Some economists believed that the Fed was particularly concerned by a report released Tuesday showing that manufacturing activity fell in December to its lowest point since the country was mired in a recession in 1991.

Given that report, today’s factory orders figures are not likely to provide much cheer to manufacturers.

New orders for transportation equipment posted the largest increase in November, rising 8.8 percent, mostly due to higher demand for airplanes and aircraft parts. That followed a sharp 17.3 percent drop the month before.

Excluding the volatile transportation category, new orders rose 0.7 percent, the fifth increase in the last seven months. The transportation sector swings widely from month to month because it includes costly items such as airplanes, ships and military tanks.

Orders for electronic and electrical equipment, including household appliances and communications equipment, rose 7 percent in November after an 11.8 percent decline.

Industrial machinery orders, including those for computers and machines tools, went up by 0.5 percent, the first increase since July, after falling 0.2 percent in October.

Durables Up, Primary Metals Down New orders for all durable goods, big-ticket manufactured items expected to last at least three years, increased by 2.5 percent in November, following a 6.6 percent drop the month before.

And, orders for non-durables, such as food and fuel, rose 0.7 percent, up from a 0.5 percent decline in October.

Primary metals, the category that includes steel, however, fell by 1.9 percent on top of a 3.4 percent decrease in October.

Shipments, a barometer of current production, declined by 0.4 percent in November after a 1.2 percent decrease.

Between June 1999 and May of 2000, the Fed boosted interest rates six times in an effort to slow the economy and keep inflation under control. In December, the Fed shifted its main policy away from fighting inflation through higher rates to guarding against an economic downturn.