Durable goods dip, but many sectors show strength

Thursday, May 29, 2008

WASHINGTON -- Orders to U.S. factories for big-ticket manufactured goods fell by a smaller-than-anticipated amount in April with many sectors outside of transportation showing unexpected strength.

The Commerce Department reported Wednesday that orders for durable goods dropped 0.5 percent, dragged down by big declines in demand for commercial aircraft and autos.

However, excluding transportation, orders rose by 2.5 percent last month, the biggest gain in nine months. Orders for electrical equipment and appliances surged by 27.8 percent, the biggest increase on record, with strong demand also registered for primary metals, machinery and communications equipment.

In another good sign, orders for non-defense capital goods excluding aircraft, considered a good proxy for business investment, rose by 4.2 percent last month, the best showing since last December.

The 0.5 percent overall decline in orders for durable goods, items expected to last at least three years, was just one-third the size of the drop that had been expected.

Many economists have been concerned that the economy could be slipping into a recession, battered by a series of blows including a prolonged slump in housing, a severe credit crisis and soaring gasoline prices that have sent consumer confidence plunging.

However, so far, overall economic growth has managed to stay in positive territory. The government will report a revised figure for the performance of the gross domestic product in the first three months of this year on Thursday. Many economists believe the initial reading that the GDP grew at a 0.6 percent rate in the first three months of the year will be revised upward to show slightly stronger growth of around 0.9 percent.

While the durable goods report could be signaling a rebound in the slumping manufacturing sector, analysts cautioned against reading too much into one month's data. They said the figures may have been skewed by difficulty the government had in making seasonal adjustments for the unusually early Easter this year.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said he believed the surprising strength shown in the April report would turn out to be temporary. He predicted "a much weaker report" when the May figures are released.

The April report showed demand in transportation fell by 8 percent, led by a 24.4 percent plunge in orders for commercial aircraft, a volatile category. Demand for motor vehicles was down 3.3 percent, reflecting the tough times facing U.S. automakers, who are struggling with a weak economy and soaring gasoline prices.

Demand for primary metals, which includes steel, rose by 2.8 percent while machinery orders were up 4.2 percent and demand for communications equipment rose by 2.2 percent.

Respond to this story

Posting a comment requires free registration: