U.S. Durable Goods Orders Drop 1.0% in May--Update

By Dow Jones Business News, 

By Sarah Portlock

WASHINGTON--A pullback in military spending dragged down overall orders for big-ticket items from U.S. factories in May, but underlying readings showed business spending picking up from its winter slump.

Demand for durable goods--products such as cars and refrigerators that are designed to last at least three years-- declined a seasonally adjusted 1.0% from April, the Commerce Department said Wednesday. It was the first decline in four months. Economists surveyed by The Wall Street Journal forecast orders would remain flat compared with April's level.

But outside the volatile transportation segment, demand for long-lasting goods declined a modest 0.1%. Swings in the civilian- and defense-aircraft categories can cause choppiness in the overall figure. And excluding defense, durable goods orders rose 0.6%.

"In short, the orders details were not as weak as the headline figure," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

A U.S. Navy order for 10 new submarines worth $17.6 billion likely caused April's defense capital-goods orders to surge 38.2%. In May, the category was down 31.4%.

New orders for motor vehicles and parts, and stronger business spending largely drove the underlying gains in durable-goods orders.

A closely watched measure of business investment--orders for nondefense capital goods, excluding aircraft--rose 0.7% in May, reversing April's decline.

"These figures confirm that capital spending continues to rebound following weakness around the turn of the year," said Michelle Girard, an economist with RBS Securities.

Most economists expect a stronger second quarter this year after the economy contracted at a 2.9% annual pace in the first quarter. Macroeconomic Advisers revised its forecast for second-quarter growth to 3.3% from 3.6% after the disappointing reading of consumer spending in the first-quarter report that suggests slower momentum heading into the spring.

A Federal Reserve report last week showed output from U.S. factories, mines and utilities rose in May, a sign of resurgence after a harsh winter and mid-spring dip. Factory activity so far in June is still expanding, with production surging, according to an early reading of business conditions compiled by data provider Markit. The gauge rose to its strongest reading in four years.

And companies have been hiring at a stronger pace this spring, with payrolls hitting an all-time high in May after the first four-month stretch of job creation above 200,000 since the late 1990s.

Write to Sarah Portlock at sarah.portlock@wsj.com

  (END) Dow Jones Newswires
  Copyright (c) 2014 Dow Jones & Company, Inc.

This article appears in: US Markets , Economy

Referenced Stocks: MRKT

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