Money Matters - Simplified

Durable goods turnaround 1.1% in May

New orders with for long-lasting manufactured goods, such as cars and computers increased by 1.1 percent last month to $217.2 billion the U.S. Commerce Department reported Wednesday.

Demand for durable goods rose in the United States, climbing after a two month decline in May, the government said.

New orders with for long-lasting manufactured goods, such as cars and computers increased by 1.1 percent last month to $217.2 billion the U.S. Commerce Department reported Wednesday.

Though the demand spurted 46 percent above the recession low in April 2009, orders are still 11.4 percent below their 2007 peak.

The figures well ahead of market predictions of a 0.4 percent increase, suggest the manufacturing sector may have stabilized.

However, concerns about global growth, weak job market and a likely recession in Europe suggest the momentum might be a passing phase.

Paul Dales, senior US economist at Capital Economics said, "The stagnation in durable goods orders in recent months is a clear sign that, in response to the easing in global demand, America's industrial recovery is running out of steam.”

He added, "On the face of it, the 1.1% month-on-month rise in durable goods orders in May looked encouraging. But this followed declines of 0.2% and 3.7% in the previous two months. The level of orders in May was therefore no higher than it was six months earlier.”

Concerns about global growth, weak job market and a likely recession in Europe suggest the momentum might be a passing phase.

The May data
The report showed that orders for transportation products picked up by a 2.7 percent in May. The increase was led by demand for commercial aircraft sector whose orders shot up by 4.9 percent.

As per the plane maker’s website, Boeing received eight orders for aircraft last month, up from four in April.

Demand for motor vehicles and parts increased by 0.5 percent. However, the pace was slower than April when the demand rose 5.7percent.

With the exception of the transportation segment, orders for durable goods - products built to last at three years were up by 0.4 percent.

Other findings in May’s report
According to the May report, core orders for non-defense capital goods, a category that excludes aircrafts jumped1.6 percent in the month after dropping 1.4 percent in April. This gain was perceived after two consecutive months of decline.

Demand for heavy machinery reported a 4.1 percent gain while orders for computer and related products were up 3.3 percent. New orders for communications equipment such as phone-networking products posted an increase of 2.3 percent.

However, requirement for primary and fabricated metals such as steel fell 1.5 percent.

Jennifer Lee, a senior economist at BMO Capital Markets stated, "All in, the improvement in May is, again, a relief. However, smoothing out the monthly wiggles in core orders shows a decelerating trend…. In other words, continued uncertainty over Europe's debt crisis and the fiscal problems in the U.S. are still hurting business and consumer confidence, and suggests only modest growth as we enter the second half of 2012."