WASHINGTON -- The unexpected 4.2% plunge in new durable goods orders in July generally was discounted by analysts yesterday as a fluke because much of it resulted from a halt in auto production for model chang-overs.
"Over half of the decrease was due to the motor vehicle and parts industry, which was heavily affected by the growing practice of shutting down for two weeks in July," the Commerce Department said in its report released yesterday.
Most economists predicted a small advance in July, following gains exceeding 1% in the two previous months. July's decline broke a string of five advances and was the largest monthly tumble since December 1991, when orders fell 5.4%.
But analysts were quick to say that the report was more likely to be a statistical aberration than a definite sign that the industrial sector was about to change course and begin deteriorating.
"The report was actually okay in general; it was all messed up by the auto shutdowns," said James E. Glassman, senior economist of Chemical Securities Inc.
The highly volatile transportation equipment category -- including vehicles, aircraft, rail equipment, and related parts -- posted the biggest decline in July, falling 15.8% thanks to declines in both the auto and aircraft industry.
Excluding transportation, durable goods orders fell only 0.3%, breaking a string of 13 monthly gains.
Among the other major goods categories: industrial machinery and equipment orders dropped 1.5% in July, primary metals fell 0.8%, and non-defense capital goods declined 5.3%. Meanwhile, electronics and electrical equipment grew 0.8%.
Elliott Platt, director of economics research at Donaldson, Lufkin & Jenrette Securities Corp., said that declining capital goods orders was an indication that growth is slowing.
"I thought the report generally fit the hypothesis that growth is moderating in the second half of the year relative to the first half," Platt said, but noted that the 4.2% drop overstates that fact.
However, other analysts said the production stoppage in the auto industry probably only temporarily depressed orders in other goods categories, particularly in primary metals and capital goods.
"There was probably a spillover effect in the other areas," said Darwin Beck, director of the economics department at CS First Boston. "The report did not change my overall outlook." He predicted a rebound in orders in August, helped by autos.
Veronika White, an economist with First Fidelity Bancorp., concurred, predicting that auto sales and production will remain at solid levels in the coming months.
American automakers have been inclined in recent years to keep their inventories lean, so the July production stoppage will probably lead to heightened production in subsequent months to catch up with sales, White said.
White noted that several large aircraft orders from other countries, including Saudi Arabia and China, have yet to show up in the new orders figures. She predicted that new orders may gain 3% or 4% in August on auto strength alone and perhaps 7% or 8% if there's also a surge in aircraft.
Nonetheless, White and other analysts said that growth in new orders for durable goods will continue to rise, but at a slowing pace as economic growth slows.
"Clearly, there's a deceleration," White said. "Durable goods orders will be very choppy but the trend will remain up rather than down."
Adding to volatility in the report, new orders for defense goods plunged 16.4% in July. Excluding defense, new orders fell 3.6%.
Yesterday's report also showed that shipments of durable goods in July declined 2.8% and unfilled orders slipped 0.2%.