Factory Order Drop May Have’Silver Lining’ (250)

KNOXVILLE, Tenn. — What looks like bad news for the nation’s economy could turn out to be an early Christmas gift, a University of Tennessee-Knoxville economist said Friday.

Dr. Matt Murray said August’s 1.9 percent drop in U.S. factory orders — the biggest drop since January 1993 — is evidence of an economic slowdown.

Orders are a key gauge of the nation’s manufacturing strength and declines can lead to slower production and fewer jobs, he said.

However, Murray said the drop may cause stores to reduce inventories now, triggering a buying boom to replenish them in December.

“Lower inventories coupled with lower factory orders may cause wholesalers and retailers to increase orders prior to the Christmas season, causing a boost in the economy around Christmas time and shortly thereafter,” Murray said. “The current drop is a negative barometer of the economy, but there may be a silver lining in that we may get the boost to production later in the year.”

Murray said the drop reflects “anxiety” among retailers and wholesalers who don’t want to accumulate big stocks of goods and substantial inventories.

“I think businesses around the country are becoming a bit more wary of the prospects of not just slower growth, but perhaps an economic downturn.

“Retailers and wholesalers alike do not want to get stuck with large inventories of goods on the shelf, so they are probably now pre-emptively reducing their orders. If the economy does go sour, they are not stuck with all those goods on their shelves.”

Contact: Dr. Matt Murray (423-974-5441)