Durable goods orders rise unexpectedly in May

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June 24, 2009

By Martin Crutsinger The Salem News Wed Jun 24, 2009, 10:36 AM EDT

WASHINGTON (AP) — Orders to U.S. factories for big-ticket manufactured goods rose sharply for a second straight month in May, and a key indicator of business investment surged by the largest amount in nearly five years.

The Commerce Department said Wednesday that demand for durable goods rose 1.8 percent last month, far better than the 0.6 percent decline that economists expected. It also matched the rise in April, with both months posting the best performance since December 2007, when the recession began.

Orders for non-defense capital goods, a key proxy for business investment plans, jumped 4.8 percent, the biggest increase since September 2004. That could signal that businesses have stopped trimming their investment spending.

The back-to-back monthly gains in orders for durable goods, or items expected to last at least three years, were further evidence that a dismal stretch for U.S. manufacturers may be nearing an end. Still, analysts say any sustained rebound is still months away.

American companies have been forced to trim millions of workers as they struggle with the longest U.S. recession since World War II. U.S. businesses also have faced a sharp drop in exports as many major overseas markets struggle with their own downturns.

Excluding transportation, orders for durable goods posted a 1.1 percent rise in May, also better than the 0.4 percent drop that had been expected.

Demand for transportation products rose 3.6 percent, reflecting a 68.1 percent surge in orders for commercial aircraft, a volatile category that had fallen 1.4 percent the previous month.

The big increase in aircraft offset continued weakness in the troubled auto sector. Demand for motor vehicles and parts fell 8.1 percent in May, reflecting major disruptions from the bankruptcy filings at Chrysler LLC and General Motors Corp.

Orders for machinery rose 7.7 percent, while demand for computers and related products surged 9.4 percent last month.

The overall economy, as measured by the gross domestic product, shrank at annual rates of 6.3 percent in the final three months of last year and 5.7 percent in the January-March quarter. That was the worst six-month stretch for the GDP in more than 50 years. The government is scheduled to revise the first-quarter GDP figure Thursday, but analysts expect that revision will leave the overall figure unchanged.

Many economists believe that GDP in the current quarter will show a much smaller decline of around 2 percent with growth returning in the second half of this year.

But they do not expect the unemployment rate will turn around quickly. The jobless rate jumped to a 25-year high of 9.4 percent in May and many economists believe it could top 10 percent before the recovery gains enough strength to push unemployment lower.

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