New Orders for US Factory Goods Fell in May on Weak Demand
New orders for US factory goods fell in May on weak demand for transportation and defense capital goods, but growing order backlogs and lean inventories suggested the worst of the manufacturing downturn may be over.
The US Commerce Department said Tuesday new orders for manufactured goods declined 1.0% after 2 straight months of increases. May’s decline was in line with economists’ expectations and followed a 1.8% increase in April.
Orders for non-defense capital goods excluding aircraft fell 0.4% in May Vs of the 0.7% drop reported last month. These core capital goods are seen as a measure of business confidence and spending plans on equipment.
Core capital goods shipments, which are used to calculate business equipment spending in the GDP report, dropped 0.5% in May as reported last month.
Manufacturing, which accounts for about 12% of the economy, has been squeezed by a strong USD and weak global demand, which have undercut exports of factory goods, as well as efforts by businesses to reduce an inventory bloat.
The sector has also been hurt by spending cuts by energy firms as they adjust to reduced profits from cheaper Crude Oil.
The Institute for Supply Management (ISM) survey last Friday showed a gauge of national activity surged in June, with factories reporting strong increases in new orders, including exports, order backlogs and inventories.
But a surprise vote last month in Britain to leave the EU poses a risk to both manufacturing and the services sectors.
A survey by the ISM last week found that, while most procurement executives do not foresee major disruptions, many were cautiously watching the situation closely and believed Brexit would hamper growth.
In May, orders for transportation equipment fell 5.7%, despite a 0.8% increase in demand for motor vehicles and parts. Defense capital goods orders dove 28.1.
Orders for machinery, which have been hurt by weak demand in the energy and agricultural sectors, gained 0.3%. Orders for electrical equipment, appliances and components slipped 0.6%. Orders for computers and electronic products were unchanged.
Inventories of factory goods dipped 0.1%, suggesting factories were making progress in reducing the inventory bloat. That could support future production at factories. Inventories have declined in 12 of the last 13 months.
The inventories-to-shipments ratio was at 1.36 in May, unchanged from April. Unfilled orders at factories increased 0.2% after rising 0.6% in April. They have increased in 4 of the last 4 months.
Tuesday, the US major stock market indexes finished at: DJIA -108.75 at 17840.62, NAS Comp -39.67 at 4822.90, S&P 500 -14.40 at 2088.55
Volume: Trade was heavy with about 955-M/shares changing hands on the NYSE.
- NAS Comp -3.7% YTD
- Russell 2000 +0.3% YTD
- S&P 500 +2.2% YTD
- DJIA +2.4% YTD
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