New orders for manufactured durable goods in May decreased $6.1 billion or 2.8 percent to $213.0 billion, the U.S. Census Bureau announced today. This followed three consecutive monthly increases including a 1.1 percent April increase. Excluding transportation, new orders decreased 1.0 percent. Excluding defense, new orders decreased 3.2 percent.
From Bloomberg:
Orders for U.S. durable goods fell more than forecast in May, casting doubt on the strength of a projected rebound in business investment.
Demand for goods meant to last several years fell 2.8 percent, the first drop in four months, after a revised 1.1 percent gain in April that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders dropped 1 percent after rising 2.5 percent.
The decline was led by fewer orders for aircraft, metals, and machinery. A reluctance to buy new equipment, along with a lingering housing slump, may call into question Federal Reserve forecasts for gradual improvement in the economy the rest of this year, economists said. Policy makers, meeting today and tomorrow, are projected to hold interest rates unchanged.
``It's clear that businesses are still somewhat risk averse and that they are being cautious in light of the softness in the economy,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Capital spending is not moving forward with the strength we had hoped.''
The drop in new orders from the previous month was widespread. Primary metals dropped 3.6%, fabricated metal parts dropped 1%, machinery dropped 1.6%, electrical equipment, supplies and components dropped 3.9%, nondefense aircraft and parts dropped 22.7%.
However, it's important to note these two points.
1.) This is the first drop over the last 4 months. No indicator goes up forever. Buyers could simply be absorbing previous purchases. This makes sense considering the April number was revised up to an increase of 1.1%.
2.) Year to date total new orders are up .5%, excluding transportation are down .3% and excluding defense are up .2%. In other words, we're close to year ago levels for all of the macro-level orders numbers. While businesses aren't seriously increasing their investment, they're also not seriously decreasing their investment.
For those of us who thought business investment would pick-up this year (which includes me) this flashes a yellow warning light. It's not fatal to that conclusion. But another month like this and that conclusion may be called into question.
