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U.S. factory orders rise
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August 31, 2001: 11:08 a.m. ET
But Michigan sentiment index reportedly revised downward; Chicago PMI up
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NEW YORK (CNNfn) - Orders to U.S. factories crept up in July, the government reported Friday, a possible sign of strength in the beleaguered manufacturing sector of the world's largest economy.
Factory orders rose 0.1 percent in July, the Commerce Department reported, following a revised 2.9 percent decrease in June. Analysts polled by Briefing.com expected orders to decrease by 0.5 percent.
Meanwhile, the University of Michigan revised its August reading on consumer sentiment sharply downward, to 91.5 from 93.5, according to a Reuters report. Analysts surveyed by Briefing.com expected the number to remain at 93.5, compared with a final July reading of 92.4.
"We're getting a flip with these numbers," said David Orr, chief economist with First Union Corp. "We had been seeing all year long the consumer doing well and the manufacturing sector doing poorly. Here, consumer confidence has fallen, but there's a hint of the manufacturing sector stabilizing."
In another possible sign of manufacturing strength, the Chicago Purchasing Managers Index for August rose to 43.5 percent, compared with 38.0 percent in July. Analysts surveyed by Briefing.com expected Chicago's PMI, which measures conditions in the Chicago area, to rise to only 40 percent. An index number below 50 signals a contracting manufacturing economy, while a reading above 50 suggests expansion.
"It's kind of the first good news that we've had on the economy all week," said Bill O'Grady, vice president and director of futures research at AG Edwards and Sons in St. Louis, of the Chicago report. "It's a good number. But the problem with the number is it's really not indicative of the national number. It's the East Coast that's really suffering."
U.S. stocks rose after the factory orders and manufacturing reports, while Treasury bond prices fell.
Separately, Federal Reserve Chairman Alan Greenspan spoke at an economic symposium in Wyoming Friday, commenting on the need for a better way to measure the strength of the economy and for a study on the impact of stock prices and home values affect consumer spending.
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Manufacturing has been in a recession for about a year, bearing the brunt of an economic slowdown brought on by weak capital spending. Falling profits for manufacturing and other companies have led to hundreds of thousands of job cuts, which have apparently begun to sap consumer confidence.
The University of Michigan's separate current conditions index, a gauge of how comfortable American consumers feel about present economic conditions, rose to 101.2 in August from 98.6 in July, Reuters said. That number was down slightly from a reported preliminary figure of 101.7.
Its expectations index, which measures consumers' attitudes about the year ahead, fell sharply to 85.2 in August from 88.4 in July, according to Reuters. The reported preliminary reading was 88.3.
On Tuesday, the Conference Board said its consumer sentiment index also fell due to worker fears about job security. But the drop in that measure was led by a more pessimistic assessment of the present situation. That report rattled financial markets around the globe on worries U.S. consumer spending growth could slow in months ahead.
The Federal Reserve has cut its target for short-term interest rates seven times this year in an effort to make money easily available and avoid a recession, and consumers have so far fended off such a recession, usually defined as two consecutive quarters of negative gross domestic product (GDP).
Click here for more on the Fed and rates
Still, GDP grew at a rate of just 0.2 percent in the second quarter, the weakest performance in eight years. Friday's manufacturing report could raise hopes that the worst aspect of GDP could be near a bottom.
"The new data are pointing toward a bottoming out in the manufacturing sector," said Paul Kasriel, chief economist with Northern Trust Co.
Orders for furniture and related products increased 2.2 percent in July, erasing a 1.1 drop in June. Electrical equipment, appliances and components posted a 1.2 percent increase, led by a 13.3 percent rise in orders for household appliances.
Transportation products also had an increase in orders of 0.9 percent overall. The biggest gain in the category came from defense aircraft, where orders were up 6.6 percent after a 39.7 percent drop in June. Orders for ships and boats were up 3.3 percent and cars and trucks increased 2 percent.
Excluding the volatile transportation sector, which tends to swing widely from month to month, factory orders were flat in July after falling 2.7 percent in June.
Orders for computers and electronic products were down 4.5 percent last month. One of the reasons the Fed has cited for cutting interest rates has been weak investment by businesses in computers and other high-tech equipment. The economic boom was fueled in part by strong capital spending.
Orders for machinery declined 2.1 percent in July after a 1.6 percent decrease the previous month. Primary metals, the category that includes steel, saw orders fall by 1.5 percent in July. 
-- from staff and wire reports
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