AP News

Ahead of the Bell: US durable goods

WASHINGTON (AP) — U.S. business orders for long-lasting manufactured goods likely rose in May, driven by demand for aircraft. But a key category of orders that reflects business investment plans is expected to be weak.

Economists predict that orders for durable goods rose 2.5 percent in May from April, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EDT Tuesday.

In April, orders for durable goods — products ranging from airplanes to refrigerators — rose 3.5 percent after a sharp decline in March. An increase in May would mark the first time since fall that orders have risen in consecutive months.

The changes in March and April reflected swings in aircraft orders, which tend to fluctuate sharply from month to month. Economists think further demand for commercial aircraft likely boosted overall orders last month.

But analysts are less confident about the category of orders that's regarded as a proxy for business investment plans. Economists at JPMorgan Chase predict that demand in the business investment category was flat in May after a 1.2 percent increase in April. That would be the weakest figure since this category fell 4.8 percent in February.

U.S. manufacturing has struggled this year, in part because economic weakness around the world has slowed demand for American exports. Economists think some businesses are also likely holding back out of concern that federal spending cuts and higher Social Security taxes that kicked in this year will weaken demand in future months.

One measure of manufacturing fell in May to its lowest level since June 2009. Slumping overseas economists and weak business spending reduced new orders and production. The Institute for Supply Management's manufacturing index fell to 49 in May from 50.7 in April.

That was the lowest level in nearly four years. And it was the first time the index has dipped below 50 since November. A reading under 50 indicates contraction in the manufacturing sector. Still, manufacturing represents only about 12 percent of the economy's total output.

The overall economy grew at an annual rate of 2.4 percent in the January-March quarter, a figure that will be revised Wednesday. Economists think that figure will remain unchanged.

But many think growth slowed in the April-June quarter to an annual rate of 2 percent or less. Analysts are more optimistic that economic growth will accelerate in the second half of the year.

Federal Reserve Chairman Ben Bernanke said last week that if the economy strengthens as expected, the Fed will likely begin to trim its monthly bond purchases later this year. He said the Fed could end its $85-billion-a month purchases altogether by the middle of next year if economic improvement continues. The bond purchases have helped keep long-term interest rates at record lows.

That announcement last week rocked financial markets. Investors grew fearful that the Fed might reduce its support before the economy has shown it will continue to strengthen.

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