US durable goods orders data suggest manufacturing stabilizing

23 Jun, 2015 8:02 pm

WASHINGTON – A gauge of US business investment spending plans rose in May, offering a tentative sign of stabilization in the manufacturing sector after activity started weakening in the late summer of 2014.

But the lingering effects of lower oil prices and a strong dollar will continue to constrain factory activity for a while, economists say. Manufacturing is lagging other economic data, including retail sales and housing, which have rebounded after hitting a soft patch at the start of the year.

The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent last month. These so-called core capital goods orders slipped 0.3 percent in April.

Prices of US Treasuries pared losses and the dollar dipped against the euro and yen after the data. US stock index futures were trading higher.

Manufacturing, which accounts for about 12 percent of the US economy, has been hurt by investment spending cuts in the energy sector in the aftermath of a more than 60 percent plunge in crude oil prices last year, as well as dollar strength.

The number of US oil drilling rigs has dropped to near five-year lows, prompting oilfield companies like Schlumberger (SLB.N) and Halliburton (HAL.N) to slash their capital expenditure budgets for this year.

However, the pace of decline in oil rig counts has slowed in recent weeks as crude prices edged higher.

The dollar has gained about 12 percent against the currencies of the United States’ main trading partners since June 2014, taking a bite out of the profits of multinational corporations.

Factories also have been hampered by businesses placing fewer orders while working through a stockpile of goods accumulated last year.

Economists had expected core capital goods orders to rise 0.5 percent last month. Shipments of core capital goods, which are used to calculate equipment spending in the government’s gross domestic product measurement, increased 0.3 percent in May after a similar gain in April.

A 6.4 percent drop in transportation equipment, however, weighed down overall orders for durable goods – items ranging from toasters to aircraft that are meant to last three years or more – which fell 1.8 percent last month.

That was because of a 35.3 percent plunge in civilian aircraft orders. Boeing (BA.N) reported on its website that it had received 11 aircraft orders last month, a drop from 37 in April. It was the second straight monthly decline in transportation orders.

Apart from transportation, there were increases in demand for primary metals, fabricated metal products, machinery and computers and electronic products. Orders for electrical equipment, appliances and components fell.

Still, the weakness in manufacturing is likely far from over, with order books continuing to shrink last month.

Unfilled orders for long-lasting manufactured goods fell 0.5 percent in May. They have declined in five of the last six months. Inventories of these goods dropped in May after 23 straight months of increases. –Reuters

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