US prospects brighten as orders jump

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HOPES that the economic recovery in the US will continue to gather momentum have been bolstered by further evidence of striking improvements in the industrial sector, with productivity and factory orders surging in 1992.

Government reports released yesterday recorded a remarkable 2.7 per cent jump in productivity last year - the biggest gain in two decades - as well as a 3.3 per cent increase in factory orders for the same period.

In December, orders rose 5.3 per cent to a record high.

The good economic tidings, combined with news of cuts in European interest rates, prompted further important gains on Wall Street, with the Dow Jones index consolidating a 40-point rise recorded on Wednesday.

'This is a very good time for stock markets because traders see a moderate and steady improvement in economic performance that is not so strong as to force inflation up again,' said Roger Kubarych, director of Henry Kaufman and Co.

There has not been so significant an improvement in productivity - a measure of output against man hours worked - since 1972 when it rose 3.2 per cent. The new rise suggests continuing streamlining in US manufacturing, improving the prospects for being competitive.

The leap in factory orders may finally spell relief in the unemployment rolls. Yesterday the Labor Department recorded a sharp drop in unemployment claims in the second half of January.

Last year's gain in orders was the largest since 1989, when a 3.9 per cent advance was recorded. In 1991, when the recession was having its greatest impact, orders retreated by 2.8 per cent. Particularly striking was the December increase, which applied across the board in industry, including the aircraft sector which earlier in the year saw orders fall sharply.

There was also a steady decline in factory inventories, suggesting that managers will have to step up production - and perhaps hiring - to keep up with rising orders.

In spite of accumulating evidence of a steady recovery, President Clinton is still expected to present an economic stimulus package worth about dollars 31bn ( pounds 21.5bn) to Congress later this month. It is likely to be split roughly evenly between tax incentives for businesses investing in new equipment and federal spending on infrastructure.

The overall picture is still clouded by the misfortunes of many large corporations, notably IBM, the main car manufacturers and the airlines, and further contraction is expected in the defence industry. Nor, meanwhile, is the recovery evenly spread, with California still lagging far behind and effectively still in recession.

Mr Kubarych said: 'The fact of the matter is that when you are in a transitional period, you are always going to have a chequered pattern. But the industrial sector, particularly relative to Europe, is doing very much better.'