THE ECONOMY DURABLE GOODS ORDERS FALL

THE ECONOMY DURABLE GOODS ORDERS FALL

The recent flush of excitement over a strong economy and potential inflation received a cold dousing Tuesday, as the government said new orders for U.S.-produced durable goods fell again in February.

Economists and financial markets had expected orders to rebound moderately after dropping in January.Instead, orders for goods that should last three or more years fell 1.8 percent to a seasonally adjusted $111.4 billion, the Commerce Department said in its initial reading of February data.

And January orders were revised downward to an identical 1.8 percent drop,

from the 1.5 percent fall previously reported.

Those were the first back-to-back monthly declines in durable orders since a three-month downturn in early 1986, Commerce said.

The unexpected February drop does not suddenly mean a recession is brewing, analysts said, but should quiet fears that the economy is growing too fast.

I'm not overly alarmed, by the weakness in orders, said Lawrence Chimerine, chief economist for the Wefa Group of economic forecasters.

Despite the declines, the level of durable orders is still fairly high, he said, and most of our clients continue to tell us that their orders are holding up well.

Worries that the economy was overheating were misplaced even before this report, he added. The inflation scare is overblown.

Recent strength in jobs data, plus cautionary remarks about prices in the latest Federal Reserve review of economic conditions, had spurred inflation worries.

January's weakness in durable goods had been blamed mainly on a drop in volatile aircraft orders.

As expected, the transportation sector bounced back in February, by 3.5 percent. But orders for all other categories fell.

The closely watched non-defense capital goods orders - a key to investment attitudes in domestic industry - fell 5.9 percent.

Defense capital goods fell 7.9 percent. Commerce said total orders without defense still fell 1.3 percent in February, and 1.5 percent in January.

Non-electrical machinery orders plummeted 8.8 percent last month, while electrical machinery fell 7.3 percent. Orders for primary metals edged down 0.2 percent, after plunging in January.

Economists, as usual, cautioned that durable goods monthly figures can be misleading and are often substantially revised.

However, they said, the trend is in line with a slow-growth economy as firms try to cut inventories.

Jean Cooke of Fidelity Bank, Philadelphia, noted the new weakness in durable goods follows several strong months at the end of 1987. It could be just a temporary breather, she said. But she conceded, I'm disappointed with the report.

She said the report raises questions about how much the U.S. export expansion is including such high-value items as machinery, and about the strength of domestic investment.

Ms. Cooke has not changed her estimate for the economy to grow around 2 percent this first quarter, but said sluggish orders now may slightly dampen production in the second quarter.

Commerce said durable goods shipments fell a scant 0.1 percent last month to $108.8 billion. The orders backlog rose 0.7 percent to $397.1 billion.