US durable goods orders up but trend and outlook weak

By Lucia Mutikani, Reuters

WASHINGTON — Demand for long-lasting U.S. manufactured goods rebounded more than expected in May and a gauge of planned business spending increased, but a cooling global economy suggests the momentum might not be sustained. Durable goods orders rose 1.1 percent last month on strong demand for transportation equipment, the Commerce Department said on Wednesday. Economists had expected orders to rise just 0.4 percent. Still, the report showed underlying softness and analysts said the outlook does not look much better.

“With global and domestic demand continuing to weaken, we believe that this relatively brisk pace of new orders activity is unlikely to be sustained,” said Millan Mulraine, senior macro strategist at TD Securities in New York. A slowdown in China and a looming recession in the eurozone have taken some of the shine off the U.S. manufacturing sector, leaving the economy stuck in a soft patch. Excluding transportation and defense, durable goods orders were down in May. However, a budding recovery in the housing market should provide a buffer for the economy. The National Association of Realtors said signed contracts for home purchases increased 5.9 percent in May, the most since October. Investors took some encouragement from the housing data and bought U.S. stocks. Lingering pessimism over Europe lifted the dollar against the euro for a third straight day, but U.S. Treasury debt prices were little changed after an auction of five-year notes was met with tepid demand. Demand for durable goods — items from toasters to aircraft that are meant to last at least three years — tends to be volatile. But a rolling three-month average showed a softening trend and orders in May remained below their December level. Regional surveys of factory activity have suggested a weakening in orders this month, a trend that is likely to be highlighted in a report on national manufacturing next week. An early manufacturing gauge last week showed activity in June at its slowest pace in 11 months. Economists said businesses appeared reluctant to invest, given an uncertain global economic outlook. Europe is struggling with a debt crisis and the United States faces the prospect of a sharp budgetary tightening at the start of next year.