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The Honolulu Advertiser
Posted on: Thursday, May 29, 2008

U.S. manufacturing shows unexpected April strength

By Marin Crutsinger
Associated Press Economics Writer

WASHINGTON — Orders to U.S. factories for big-ticket items besides autos and airplanes showed surprising strength in April, raising hopes that manufacturing can help the economy shake off the slumping housing market and credit problems.

Overall, orders for durable goods dipped by 0.5 percent in April, reflecting steep declines in commercial aircraft and autos, the Commerce Department reported yesterday.

The decline, however, was just a third of what experts had expected. Take out the volatile transportation sector and orders rose 2.5 percent, the largest gain in nine months. That reflects strength in areas ranging from heavy machinery and steel to a record surge in demand for electrical equipment and appliances.

It indicates the economy was entering the April-through-June period with some momentum in manufacturing, a sector critical to helping keep the country from recession.

"The economy is soft, but with demand for big-ticket items holding in there, a sharp slowdown does not seem to be in the works," said Joel Naroff, chief economist at Naroff Economic Advisors.

Many experts have worried that the economy could slip into a full-fledged downturn because of housing woes, credit tightening and soaring gasoline prices that have sent consumer confidence plunging.

The Conference Board reported Tuesday that its confidence index fell in May to the lowest reading in 16 years.

Despite all the problems, overall growth has managed to stay in positive territory so far. The government will report a revised figure for the performance of the gross domestic product in the first three months of this year today. Many economists believe the initial reading of GDP growth at a 0.6 percent rate for January through March will now be reported at about 1 percent.

While some economists are concerned that GDP could slip into negative territory in the current quarter, the durable goods report showed areas of strength. That included a 4.2 percent rebound in orders for nondefense capital goods, excluding aircraft, considered a good proxy for business investment, which is a key GDP component.

Analysts said manufacturing is benefiting from a strong export demand. U.S. manufacturers are getting a boost from the weaker dollar, which makes their products cheaper overseas, and from businesses that did not go on an investment-spending binge before the current slowdown.

Still, economists said it would be premature to say that the country has managed to avoid a recession based on one month's data on durable goods.

They are watching to see how consumer spending fared in April. That report comes out tomorrow. Consumer activity accounts for two-thirds of the economy.

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