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Durable Goods Orders May Point to U.S. Manufacturing Slowdown

Orders for durable goods in May probably failed to make up for the worst four months since the recession, indicating U.S. manufacturing will cool, economists said before a report today.

The projected 0.5 percent gain in bookings for goods meant to last at least three years would follow little change in April, according to the median forecast of 76 economists surveyed by Bloomberg News. Orders fell 6.6 percent in the first four months of the year, the weakest stretch since the same period in 2009, during the last recession.

A slowdown in global growth emanating from Europe may harm exports and prompt companies to curtail equipment spending, hurting sales at manufacturers like Joy Global Inc. (JOY) Combined with a slackening in demand from American households facing 8.2 percent unemployment, the cutbacks help explain why the Federal Reserve extended a plan to keep borrowing costs low.

“We’re seeing signs of weakness in manufacturing,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York. “There’s a lot of uncertainty about the nature of demand, about the global outlook, about the U.S. outlook.”

The Commerce Department data are due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a decline of 1.5 percent to an increase of 2 percent.

The report may also show that bookings excluding transportation equipment may have climbed 0.7 percent, failing to make up for the 0.9 percent drop the prior month, according to the Bloomberg survey median.

Regional Slowdown

Some regional reports showed the slowdown has spilled over into this month. Manufacturing in the Philadelphia area shrank in June at the fastest pace in almost a year, while New York- region factories expanded at the slowest pace in seven months.

Joy Global, the maker of P&H and Joy mining equipment, cut forecasts for full-year earnings and revenue as mining companies ease capital expenditure amid concern over the slowdown in China. Its equipment orders fell 62 percent in the fiscal second quarter from a year earlier primarily due to a weak U.S. coal market, the Milwaukee-based company said.

“Even though there is upside to the current market conditions, the continuing uncertainty will keep mining companies cautious,” Mike Sutherlin, chief executive officer, said in the May 31 statement.

The Standard & Poor’s Supercomposite Machinery Index (S15MACH), which includes companies like Deere & Co., has fallen 15 percent since April 30, while the broader S&P 500 (SPX) gauge has declined 5.6 percent.

Consumer Spending

Consumers, whose spending accounts for about 70 percent of the economy, have trimmed purchases of expensive items like automobiles as the labor market softens. Cars and light trucks sold at a 13.7 million annual rate in May, the weakest this year and down from April’s 14.4 million pace, Ward’s Automotive Group data showed.

Housing, a laggard in the economy, is showing signs of healing. The number of Americans signing contracts to buy previously owned homes grew 1.5 percent in May after falling 5.5 percent in April, according to the Bloomberg survey median. Pending home resales provide insight into actual contract closings a month or two later. The National Association of Realtors’ report is due at 10 a.m.

The Fed on June 20 pledged to keep its benchmark interest rate near zero until at least through late 2014. The central bank announced it’ll expand the Operation Twist program to extend the maturities of assets on its balance sheet, and said it stands ready to take further action as needed.

“The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually,” policy makers said in a statement. Fed officials also lowered their outlook for growth and employment.

                  Bloomberg Survey

===============================================
                          Durables  Pending
                            Orders    Homes
                              MOM%     MOM%
===============================================
Date of Release              06/27    06/27
Observation Period             May      May
-----------------------------------------------
Median                        0.5%     1.5%
Average                       0.3%     1.7%
High Forecast                 2.0%     6.8%
Low Forecast                 -1.5%    -1.6%
Number of Participants          76       39
Previous                      0.0%    -5.5%
-----------------------------------------------
4CAST Ltd.                    0.5%     0.5%
ABN Amro Inc.                 0.5%     1.5%
Action Economics              0.5%     ---
Aletti Gestielle              0.5%     ---
Ameriprise Financial Inc      0.5%     1.0%
Analytical Synthesis          ---      2.1%
Banca Aletti & C spa          1.0%     ---
Bantleon Bank AG              0.1%     ---
Barclays                      0.8%     1.5%
Bayerische Landesbank         0.0%     ---
BBVA                          0.5%     0.5%
BMO Capital Markets           1.0%     1.0%
BNP Paribas                  -1.0%     0.5%
BofA Merrill Lynch Resear     0.2%    -1.5%
Briefing.com                  1.0%     1.0%
Capital Economics            -0.5%     4.0%
CIBC World Markets           -1.0%     ---
Citi                          0.5%     ---
ClearView Economics          -0.5%     2.0%
Comerica Inc                 -1.0%     ---
Commerzbank AG               -1.0%     2.0%
Credit Agricole CIB           1.0%     ---
Credit Suisse                 0.5%     ---
Daiwa Securities America      0.0%     ---
Danske Bank                   0.7%     1.0%
DekaBank                      0.5%     ---
Desjardins Group              1.5%     ---
Deutsche Bank Securities      1.0%     1.0%
Deutsche Postbank AG          1.0%     ---
Exane                         1.8%     ---
First Trust Advisors          0.8%     ---
Goldman, Sachs & Co.          0.0%     ---
Helaba                        2.0%     ---
High Frequency Economics      1.0%     3.0%
HSBC Markets                  0.5%     1.0%
Hugh Johnson Advisors         1.0%     ---
IDEAglobal                    0.7%     1.0%
IHS Global Insight           -0.6%     2.0%
Informa Global Markets        0.2%     2.5%
ING Financial Markets         0.2%     2.6%
Insight Economics             1.0%     3.0%
Intesa Sanpaulo              -0.1%     ---
J.P. Morgan Chase             0.4%     4.0%
Janney Montgomery Scott L     0.3%    -1.6%
Jefferies & Co.               0.4%     ---
John Hancock Financial        0.0%     3.0%
Landesbank Berlin            -0.5%     ---
Landesbank BW                 0.5%     ---
Market Securities            -0.2%     2.6%
MET Capital Advisors         -0.4%     ---
Mizuho Securities             0.0%     0.5%
Moody’s Analytics             0.2%     2.5%
Morgan Stanley & Co.         -0.1%     ---
National Bank Financial       0.2%     ---
Natixis                       1.0%     ---
Nomura Securities Intl.      -0.6%     ---
Nord/LB                       0.6%     ---
OSK Group/DMG                 0.0%     ---
Pierpont Securities LLC      -1.5%     ---
PineBridge Investments        0.8%     0.5%
PNC Bank                      0.3%     ---
Raiffeisenbank Internatio     1.5%     ---
RBC Capital Markets           0.3%     2.0%
RBS Securities Inc.          -1.5%     ---
Scotiabank                    0.0%     1.3%
SMBC Nikko Securities        -0.6%     6.8%
Societe Generale              0.4%     3.9%
Southern Polytechnic Stat     0.6%     ---
Standard Chartered            0.4%     0.5%
Stone & McCarthy Research     0.8%     ---
TD Securities                 0.6%     2.5%
UBS                           0.0%     2.5%
UniCredit Research            0.5%     ---
University of Maryland        0.5%     0.0%
Wells Fargo & Co.             0.5%     ---
Westpac Banking Co.           0.0%     1.0%
Wrightson ICAP                0.8%     3.0%
==================================================

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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

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