Bloomberg News

WASHINGTON - Data released Friday included little evidence of an economic slowdown.

Though U.S. factory orders for durable goods fell for a second straight month in February, a rise in factory backlogs suggested production increases in the months ahead. Orders dropped 2.3% last month on weaker demand for aircraft, machinery, and metals, after a 2.2% decrease in January, the Commerce Department said.

The news sent Treasury prices lower, as investors concluded that the Federal Reserve may have to raise short-term interest rates again to slow the economy and forestall inflation.

Compared with February 1999, durable goods orders were up 7.3%. Shipments of nondefense goods other than aircraft, which influence the government's gross domestic product report, also are on pace this quarter for the largest increase in more than six years.

Durable goods orders that went unfilled rose for a fourth straight month, increasing 0.5% in February and "suggesting that industrial output is likely to continue to grow over the next several months," said Steve Wood, an economist at Banc of America Securities in San Francisco.

"It's still steady as she goes in manufacturing," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York. "Consumer confidence remains fairly high, and factories will keep shipping goods to stock stores."

The government's statistics on durable goods are volatile on a month-to-month basis, analysts said. The February and January declines were preceded by a 6.5% surge in December, the largest monthly rise since December 1992.

Excluding aircraft and other transportation equipment, February orders fell 0.2%. In January, orders minus transportation declined 0.5%.

Manufacturing expanded in February at its fastest pace in four months, led by export and production gains, an industry survey showed this month. The National Association of Purchasing Management's factory index rose to 56.9 for the month, from 56.3 in January.

Factories have been responding to consumer demand that shows few signs of cooling. In the fourth quarter, personal spending rose at a 5.9% annual pace after increasing in the third quarter at a 4.9% rate. That helped propel growth in gross domestic product to its fastest clip in three and a half years.

"There have been few signs of a slowdown in domestic demand this quarter," said Peter Kretzmer, an economist at Banc of America Securities in New York. "Consumer spending grew near 6% annualized." Retail sales rose 1.1% in February after a 0.4% increase in January.

Orders fell in all categories except electronic and other electrical equipment such as appliances. Orders for those goods rose 6.4% during the month, after a 10.1% drop.

"The North American appliance industry continues to outpace last year's record levels," said David R. Whitwam, chairman and chief executive officer of Whirlpool Corp. in Benton Harbor, Mich.

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