Factory Orders Rise, Auto Sales Down

W A S H I N G T O N, Jan. 4, 2001 -- Orders to U.S. factories bounced back a bit inNovember, rising 1.7 percent as demand grew for airplanes,electronics and industrial machinery.

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

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

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

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

It marked a larger increase than some analysts were expectingand the highest level since July 4, 1998, when claims were at384,000.

Tough Winter Ahead For Automakers

Not wanting the economic slowdown to slip into a recession, theFederal Reserve, in a surprise move Wednesday, cut short-terminterest rates by a bold, half a percentage point. The action isdesigned to lower borrowing costs and spur business investment andconsumer 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 similarmove Ford announced a few weeks ago.

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

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

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

Chrysler said its sales fell 15 percent in December, with carsdown 25 percent and trucks down 11 percent. The troubled automakerended 2000 with sales down 4.4 percent. The company said it wouldconduct one-week shutdowns at eight of its 12 U.S. and Canadianfactories in January to cut inventories.

But the bad news did not touch several foreign automakers. Toyotasaid its sales were up 14 percent in December and 10percent 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 inDecember, but up 11 percent for the year. All three Koreanautomakers reported large gains for the month and year.

Retail Sales Also WeakMeanwhile, 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 TokyoMitsubishi economist Michael Niemira said today.“Everybody, with a few exceptions, felt the effect of a softereconomy.”

Exacerbating the situation were ice and snow storms thathindered travel to stores and malls in the South, Midwest andNortheast during the month. Last year sales were also poweredby spending on items to prepare for the year 2000.

The sales shortfalls are important because holidaypurchases in November and December typically account for about25 percent of a retailer’s annual sales.

The S&P Retail index was off 9.57 at 906.33 in morningtrade. The index has a year high of 1052 and a 52-week low of696.72.

Retailers that issued earnings warnings includeddiscounters 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 discountpowerhouses like

Wal-Mart Stores, Inc. and

Target Corp.which both reported sales that lagged expectations.

Wal-Mart, the world’s largest retailer, reported an anemic0.3 percent increase in December same-store sales. The companysaid it now expects fourth-quarter same-store sales growth tofall short of its initial forecast of 3 percent to 5 percent.

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

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

Sears, Roebuck and Co. said its same-store sales fell 1.1percent in December and that it will close 89 underperformingstores in the first quarter. To cover the costs, Sears said itwill 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 lastmonth.

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

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

Fed Concerned Over December SlumpThe Fed said its actions Wednesday were taken in light offurther weakening of sales and production, lower consumerconfidence, higher energy prices and tighter credit conditions.

Some economists believed that the Fed was particularly concernedby a report released Tuesday showing that manufacturing activityfell in December to its lowest point since the country was mired ina recession in 1991.

Given that report, today’s factory orders figures are notlikely to provide much cheer to manufacturers.

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

Excluding the volatile transportation category, new orders rose0.7 percent, the fifth increase in the last seven months. Thetransportation sector swings widely from month to month because itincludes costly items such as airplanes, ships and military tanks.

Orders for electronic and electrical equipment, includinghousehold appliances and communications equipment, rose 7 percentin November after an 11.8 percent decline.

Industrial machinery orders, including those for computers andmachines tools, went up by 0.5 percent, the first increase sinceJuly, after falling 0.2 percent in October.

Durables Up, Primary Metals DownNew orders for all durable goods, big-ticket manufactured itemsexpected to last at least three years, increased by 2.5 percent inNovember, following a 6.6 percent drop the month before.

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

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

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

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