Durable Goods Orders Strengthen

By BridgeNews The factory sector showed unexpected signs of strength in May as orders for durable goods rebounded 2.9%, confounding the 0.4% drop analysts were expecting and partly reversing the 5.5% decline in April orders, the Commerce Dept. said June 26. Excluding transportation, durable goods orders rose 2.7% in May. Among analysts surveyed by BridgeNews, forecasts for new orders ranged from down 2.7% to up 1.5%. "Transportation equipment had the largest increase . . . due to motor vehicles and parts," the Commerce Dept. said. Transportation orders posted a 3.4% increase in May, led by a 7.4% surge in orders for cars and car parts. New orders for aircraft and parts were up 2.9%. Meanwhile, orders for computer and electronic products rose 2.7% on a 35.3% increase in demand for semiconductors. New orders for semiconductors had plunged 40.0% in April. However, orders for communications equipment dropped 11.5% in May. Elsewhere, new orders for primary metals were up 5.9%, orders for machinery rose 2.6%, and orders for fabricated metal products gained 1.2%. New orders for non-defense capital goods were up 0.9% for the month, while shipments were up 2.0%. Non-defense capital goods orders and shipments were down 5.5% and 5.0%, respectively, in April. The May durable goods report marks a patch of unexpected strength in the manufacturing sector, which has been mired in recession this year. Durable goods orders have now risen in three of the past four months. Declining business investment up to this point has been a key reason the Fed has cut its fed funds short term interest rate by one-half percentage point five times so far this year. June 26's data, however, may support calls for a less aggressive quarter point interest rate cut when Fed policy makers issue their next rate announcement June 27.

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