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Date: Thu, 29 Oct 92 13:13:30 EST
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10/29/92

TITLE #m#gmtlj#m#Economy Sends Mixed Signals In September


 Incomes Were Up, But Durable Orders Fell Ahead Of Vote Thomas
McArdle In New York Statistics on durable goods orders and per-
sonal income released yesterday by the government provided a
mixed picture of the economy's health less than a week before
Election Day.

Durable goods orders - for such items as automobiles, computers
and other big- ticket goods - fell 0.4% in September to a season-
ally adjusted $118.9 billion, the Commerce Department said. Many
economists had been expecting an increase.  Meanwhile, the
Department of Commerce also reported that personal income rose
0.7% in September, the strongest gain experienced this year and
above the 0.5% that had been widely expected among analysts. How-
ever, the wage and salary portion of personal income, about two-
thirds of the total, fell from $2.93 trillion in August to $2.92
trillion.

Total personal disposable income in 1987 dollars rose from $3.574
trillion to $3.581 trillion.  The decline in durable goods orders
constituted the third monthly decline in a row for the first time
since the recessionary first quarter of 1991. Durable orders
dropped 0.4% in August and 2.7% in July.  But some economists see
cause for optimism after breaking down the durable goods numbers
for last month. The drop was primarily a result of lower defense
and aircraft orders, two highly volatile categories for durables
spending.  Overall orders rose 0.5% after subtracting defense
orders, which plunged 15.7% in September.  While this was a mas-
sive change from the 13.6% increase for August, the defense
category has proved an unpredictable indicator in recent months:
It dropped 21.4% in July, jumped 22.4%


Economy Sends Mixed Signals In September


in June, dropped 27.7% for May and gained 20.4% in April.  "I
think the orders for durable goods are good news," said Sung Won
Sohn, chief economist for Norwest Corp. in Minneapolis. "Orders
excluding transportation went up nicely, non-defense orders went
up quite strongly, and these things would indicate that
businesses are expecting consumers to be buying more durable
goods.  "It also indicates businesses are attempting to raise
productivity, instead of hiring people," he added. "Consequently
we are seeing more orders of business equipment." Ed Yardeni,
chief economist for C.J. Lawrence Inc. in New York, pointed out
that, "Excluding defense and civilian aircraft, capital goods
orders are at a record high and durable goods orders are near
their 1988 all-time high." Neither are near the lows they sank to
in the 1982-83 and 1980 recessions.

But Robert A. Brusca, chief economist at Nikko Securities in New
York, calls these signals "unequivocally weak." "Three consecu-
tive declines in durable goods orders, and we still see backlogs
shrinking, which says that firms are cannibalizing their order
books to keep things afloat," he said.  The report is not all bad
news, however, Brusca added.

"If there is any possible silver lining in this report, it is
that the machinery industries were doing better. Electrical and
nonelectrical machinery showed increases in orders, shipments and
even increases in their order backlog books, which is pretty
unusual. But this is just a small core of good news," he said.
Electrical machinery orders went up by 5.6%, after a 4.5% decline
in August and 3.9% increase in July. Nonelectrical machinery in-
creased 2.3% in September, after two months of declines and a
5.8% rise in June.  Excluding transportation, durable goods re-
gistered a 2.1% gain for September, making for gains in four out
of the last six months.  Unfilled orders, which dropped 1.3%,
have declined in each of the last 13 months, while capital goods
in the defense and non-defense areas increased by 3.5% and 1.9%
respectively, the first increases since June.  But even the
strong personal income increase included some underlying signs of
trouble.  "A lot of it is due to the rebound from hurricane dam-
age," Norwest's Sohn noted.

Farm subsidies also boosted income last month. "It has been pri-
marily the hurricane, the farm subsidies and the transfer payment
effects that have been the substantial boosts to income," Brusca
remarked.  The 0.7% increase in personal income for last month
followed a revised 0.5% decline in August and more meager gains
in the three previous months. But the wage and salary portion saw
a 0.1% drop, after increases for two straight months and in three
of the last four months.  Adjustments were made for the effects
of Hurricanes Andrew and Iniki for uninsured property losses,
work interruptions and farm damage. If those adjustments are sub-
tracted, personal income gained by 0.1% in September and 0.6% for
August.  Secretary of the Treasury Nicholas Brady asserted yes-
terday that the gross domestic product figures released Tuesday
would have been more than 3.2%, rather than the 2.7% that was re-
ported, without the effects of the hurricane.  He predicted 1993
will be a "very good year."

Brady's comments followed Vice President Dan Quayle's offensive
on the TV talk show circuit earlier this week, touting a chart
showing a six- quarter improvement trend in GDP.  With the most
recent polls showing President Bush nearly even with Democrat
Bill Clinton, even these mixed economic signals seem to be in-
spiring more confidence in the economy.

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