Bloomberg News

Orders to U.S. Factories Rose 0.8% in May on Capital Goods

July 05, 2011

(Updates with economist’s comment in fourth paragraph.)

July 5 (Bloomberg) -- Orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown in economic growth in the first half of 2011.

Bookings for manufacturers’ goods rose 0.8 percent, less than forecast, after a revised 0.9 percent decline in April that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Demand for durable goods that are meant to least at least three years increased 2.1 percent, while unfilled orders climbed the most since September.

Manufacturing is showing signs of recovering from parts shortages linked to the earthquake and tsunami in Japan, at the same time commodity costs ebb and growing economies overseas fuel exports. The improvement in orders supports the view of Federal Reserve officials, who last month said the economic slackening likely reflects temporary restraints.

“We’re kind of moving back toward recovery from the weakness of the Japanese supply-chain disruptions,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who correctly forecast May orders. “As we move forward, you’ll see manufacturers getting right back on track to a solid pace of growth.”

Economists forecast factory orders would rise 1 percent, according to the median of 60 projections in a Bloomberg News survey. Estimates ranged from 0.3 percent decline to a 2.1 percent increase.

Stocks held losses after the report, with the Standard & Poor’s 500 Index falling 0.2 percent to 1,336.94 at 10:17 a.m. in New York. Treasuries rose, pushing down the yield on the benchmark 10-year note to 3.14 percent from 3.18 percent late on July 1.

Durable Goods

The rise in durable goods orders, which make up more than half of total factory demand, was bigger than the 1.9 percent increase estimated by the government June 24.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, rose 1.6 percent after a 0.4 percent decrease in April.

Shipments of such equipment, which are used in calculating gross domestic product, increased 1.8 percent after a 1.5 percent decrease in April.

Factories showed a 0.9 percent rise in unfilled orders in May, the biggest gain since September and reflecting increases for machinery, computers and electrical equipment.

Bookings for non-durable goods, including petroleum and chemicals, fell 0.2 percent, reflecting a decline in the value of crude oil, today’s report showed.

Factory Inventories

Factory inventories increased 0.8 percent in May, and manufacturers had enough goods on hand to last 1.34 months at the current sales pace, up from 1.33 months in April.

Other recent reports have shown manufacturing, which makes up 11 percent of the economy, may be starting to recover after it dwindled beginning in March.

Factories unexpectedly expanded at a faster pace in June, the Institute for Supply Management’s manufacturing index showed last week. In May, output at U.S. factories climbed 0.4 percent on rising demand for machinery and computers, Fed data showed June 15. Autos and parts production fell 1.5 percent compared with a 6.5 percent plunge in April.

In Japan, industrial output increased in May by the most since 1953, led by carmakers that restored operations, government figures showed June 29.

Even with the earthquake, unrest in the Middle East and higher commodity prices, manufacturing “has been the rock in the system,” Thomas L. Williams, executive vice president and operating officer at Parker Hannifin Corp., said June 16 during a conference in Chicago. “I still feel that way. I’m not worried about a double-dip recession as far as what I’m seeing.”

The Cleveland-based maker of components used in construction equipment and aircraft is focusing on growth in Asia, where it is on track to triple sales to $3 billion, Williams said.

--With assistance from Chris Middleton in Washington. Editor: Vince Golle

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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