Durable Goods Decrease 2.8%

Business decision makers are uncertain about prospects for growth

New orders for manufactured durable goods in May decreased $6.1 billion or 2.8% to $213.0 billion, the U.S. Census Bureau announced June 27. This followed three consecutive monthly increases including a 1.1% April increase.

Excluding transportation, new orders decreased 1%. Excluding defense, new orders decreased 3.2%. Transportation equipment, down two consecutive months, had the largest decrease, $4.5 billion or 6.8% to $62.4 billion. This was led by nondefense aircraft and parts, which decreased $4.1 billion.

"While a modest decrease was to be expected in business equipment spending after two consecutive monthly increases in March and April, the May durable goods report indicates that business decision makers remain uncertain about the short-term prospects for U.S. economic growth," said Cliff Waldman, economist for the Manufacturers Alliance/MAPI.

"This uncertainty appears to be especially pronounced in the manufacturing sector given the pullback in demand for key capital and material inputs such as primary and fabricated metals as well as machinery. A number of domestic headwinds are preventing a full recovery in capital investment. Market interest rates are rising, the Federal Reserve remains concerned about inflation, profit margins appear to be narrowing and the housing slump appears to be deeper and longer lived than recently expected.

"Strong global demand should generate enough strength in export markets to allow for modest economic and manufacturing growth," he added. "But, particularly in the factory sector, growth for the balance of 2007 and early 2008 will be more sluggish and uncertain than in past years."

Inventories of manufactured durable goods in May, up fifteen consecutive months, increased $0.7 billion or 0.2% to $313.2 billion. This was at the highest level since the series began and followed a 0.4 percent April increase.

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