Orders for Durable Goods Rise

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Orders for Durable Goods Rise, but Global Concerns Lurk

By THE ASSOCIATED PRESS
June 27, 2012
WASHINGTON (Reuters) — Demand for long-lasting manufactured goods rebounded more than expected in May and a gauge of planned business spending increased, but a cooling global economy suggested the momentum might not be sustained.
Orders for durable goods rose 1.1 percent last month on strong demand for transportation equipment, the Commerce Department said Wednesday. Economists had expected orders to rise just 0.4 percent.

Still, the report showed underlying softness, and analysts said the outlook did not look much better.

“With global and domestic demand continuing to weaken, we believe that this relatively brisk pace of new orders activity is unlikely to be sustained,” said Millan Mulraine, senior macro strategist at TD Securities in New York.

A slowdown in China and a looming recession in Europe have taken some of the shine off the American manufacturing sector, leaving the economy stuck in a soft patch.



Excluding transportation and military, durable goods orders were down in May.

But a budding recovery in the housing market should provide a buffer for the economy. The National Association of Realtors said signed contracts for home purchases increased 5.9 percent in May, the most since October.

Demand for durable goods — items from toasters to aircraft that are meant to last at least three years — tends to be volatile. But a rolling three-month average showed a softening trend, and orders in May remained below their December level.

Last month, however, represented a relative bright spot.

Nonmilitary capital goods orders excluding aircraft, a closely watched gauge for business spending plans, increased 1.6 percent in May after dropping 1.4 percent in April. The gain snapped two straight months of declines.

Shipments of nonmilitary capital goods orders excluding aircraft, used to calculate equipment and software spending for the government’s measure of gross domestic product, rose 0.4 percent in May after declining 1.5 percent in April.

Regional surveys of factory activity have suggested a weakening in orders this month, a trend that is likely to be highlighted in a report on national manufacturing next week.

“The underlying trends in orders and shipments of investment goods not only remain weak but point to further deceleration from the already subdued levels,” said Harm Bandholz, chief economist at UniCredit Research in New York.

While the American economy is slowing, the housing market is proving to be a bright spot.

The rise in pending home sales in May took them back to a level that matched March as the best month since April 2010, when buyers were rushing to take advantage of an expiring tax credit.