Plunge in Factory Orders Dims Hopes for Balanced Trade

WASHINGTON — Orders to American factories suffered their steepest one-month decline in almost seven years, a 4% drop in January that analysts blamed in part on turmoil caused by the new tax law.

The Commerce Department report Wednesday said that orders totaled $194.46 billion in January, a decline of $8.16 billion from December, when orders had risen 1.6%.

Civilian orders were even weaker in January, plunging 5.2%, an all-time record. This decline was mitigated somewhat by a huge jump in orders for defense equipment.

The December orders advance, which had followed an even stronger 3.6% November increase, had fueled hopes that American manufacturers were finally beginning to see improvement after a 2 1/2-year period of sluggishness caused by the steep deterioration in the trade deficit.

But analysts attributed the year-end strength to a rush by American consumers and businesses to buy and take delivery on big-ticket items while they could still qualify for more lucrative tax benefits under the old tax law.

Edward Yardeni, chief economist of Prudential-Bache Securities in New York, said the big January decline showed that American manufacturers are still under intense foreign competition, with the long-awaited rebound in trade yet to occur.

“If trade were improving, you would expect to see it in these orders numbers, and that isn’t happening,” he said. “The orders are still at the bottom of the range where they have been hovering for the last two years.”

Overall economic growth, as measured by the gross national product, slumped to 2.5% last year, the poorest showing since the last recession, with American manufacturing one of the hardest-hit sectors.

The Reagan Administration is forecasting a substantial rebound in growth this year to 3.2%, but Yardeni predicted the GNP would expand at a weak rate of between 1% and 2%, as trade fails to improve enough to offset expected declines in business investment and consumer spending.

The 4.0% drop in factory orders in January was the largest decline since a 4.5% decrease in May, 1980.

One of the biggest declines in January occurred in business capital spending, which fell 17%, the biggest drop in a year. Many analysts are looking for business spending to be weak all year as firms adjust to a loss of investment tax benefits.

Orders for military equipment shot up 49.7% in January to $6.55 billion after an even bigger 57.7% decline the month before. Such wide swings in this category are not unusual.

The decline in orders in January was concentrated in durable goods, items expected to last three or more years. These orders totaled $103.0 billion in January, 6.7% below the December total. An advance report last week had put the drop in durable goods at an even larger 7.5%.

Orders for non-durable goods edged down 0.8% in January after rising 1.7% the month before.

Within the major categories, orders for electrical machinery fell 19.8% to $14.7 billion while orders for primary metals such as steel dropped 17.7% to $8.7 billion. Orders in the transportation category were down 4.5% to $28.7 billion, with the weakness coming in autos.

Shipments of factory goods fell 3.8% to $196.7 billion.