U.S. Durables Orders Indicate Manufacturing Boost to Recovery

Orders for durable goods excluding transportation rose in May for the third time in four months, indicating U.S. manufacturing will help maintain the recovery.

The 0.9 percent increase in bookings for goods meant to last at least three years, excluding autos and aircraft, followed a 0.8 percent decrease in April, figures from the Commerce Department showed today in Washington. Total orders dropped for the first time in six months as demand for planes retreated.

A pickup in business spending on new equipment in the U.S. and abroad has benefited companies like Caterpillar Inc. as orders rise and factories spearhead the expansion. Consumer spending, which makes up 70 percent of the economy, is still being limited by unemployment, underscoring the Federal Reserve’s view the recovery is “moderate.”

“Profit growth has been very strong, and that’s giving firms both the means and incentive to invest,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. Manufacturing “is really powering the recovery at this time.”

The number of Americans filing for jobless benefits declined last week from a two-month high, pointing to improvement in the labor market that’s taking time to develop. Claims fell by 19,000 to 457,000, the Labor Department said today.

Stock-index futures trimmed losses after the reports and Treasury securities rose. Futures on the Standard & Poor’s 500 Index expiring in September fell 0.5 percent to 1,081.8 at 9 a.m. in New York. The 10-year Treasury note rose, pushing down the yield to 3.08 percent from 3.12 percent late yesterday.

Economists’ Forecasts

Economists forecast orders for durable goods excluding transportation to rise 1 percent after a previously reported April decrease of 1.1 percent. Bookings for all items were forecast to decline 1.4 percent after a previously reported gain of 2.8 percent in April, according to the median of 76 projections in a Bloomberg News survey. Estimates ranged from a drop of 4.5 percent to a 1.2 percent advance.

Commercial aircraft orders, which are volatile, plunged 30 percent after surging 216 percent in April. Boeing Co., the world’s second-biggest commercial-plane maker, said this month it received 5 aircraft orders in May, compared with 34 in April and 43 in March. Industry data don’t always correlate with the government’s statistics on a month-to-month basis.

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, increased 2.1 percent in May after falling 2.7 percent the prior month. Over the past three months, these orders climbed at a 29 percent annual pace, up from 21 percent in April, signaling companies are ramping up investment.

Capital Goods Sales

Shipments of those items, used in calculating gross domestic product, increased 1.6 percent after no change in April.

Demand in May increased for computers and related products, primary metals and machinery, today’s report showed.

Orders excluding defense equipment decreased 1.1 percent, the first decline in the last nine months. Bookings for military capital goods fell 3 percent.

The Fed yesterday restated a pledge to keep its key interest rate close to zero, where it’s been since December 2008, to maintain the recovery. In their statement accompanying the decision, central bankers said the “economic recovery is proceeding and that the labor market is improving gradually.” Household spending is “constrained by high unemployment.”

Debt Crisis

U.S. factories face the risk that Europe’s debt crisis will slow export growth at the same time a stronger dollar makes American goods less competitive. U.S. exports fell 0.7 percent in April after jumping 3.8 percent the previous month, the Commerce Department reported June 10.

Some companies are forecasting increased sales as the global economy recovers. Caterpillar, the world’s largest maker of construction equipment, will see revenue rise 25 percent this year on surging demand for equipment from the mining and energy industries in developing nations, Chief Executive Officer James Owens said this week.

“We’re coming back very strongly after the recession,” Owens told reporters after a conference in Lima. “We’ll see growth in oil, gas and coal because we need energy for these rapid-growth emerging countries that are driving the need for commodities.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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