Orders to U.S. factories increase for first time in 3 months

ORDERS PLACED WITH U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering.
Posted 7/3/12

WASHINGTON - Orders placed with U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering.

The 0.7 percent increase in bookings followed a revised 0.7 percent drop in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a rise to 0.1 percent.

Europe’s debt crisis and a slowdown in Asian markets including China is restraining exports, weighing on the outlook for manufacturers like Joy Global Inc. and DuPont Co. Business investment, a mainstay of growth, will provide less of a boost to the economy as a weakening labor market holds back American consumers from boosting purchases of vehicles and other goods.

“Manufacturing is cooling,” Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York, said before the report. “Demand is getting weaker, and that has a bearing on manufacturing activity. We’ll see weakness in orders going forward.”

Estimates in the Bloomberg survey of 52 economists ranged from a drop of 1.3 percent to a gain of 1 percent. The Commerce Department revised the April figure from a previously reported drop of 0.6 percent.

Excluding transportation equipment, factory orders increased 0.4 percent in May after falling 0.9 percent the prior month.

Bookings for durable goods, those meant to least at least three years climbed 1.3 percent, also the first gain in three months. They make up just over half of total factory demand. Today’s reading was more than the 1.1 percent gain estimated by the government on June 27. Demand for non-durable goods, including petroleum, increased 0.2 percent.

Capital goods

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, advanced 2.1 percent, more than the 1.6 percent gain estimated last week, after falling 1.5 percent the prior month.

Shipments of those goods, used in calculating gross domestic product, increased 0.6 percent, more than previously projected, after dropping 1.5 percent in April.

An unemployment rate exceeding 8 percent is restraining household spending, which accounts for about 70 percent of the economy. Cars and light trucks sold at a 13.7 million annual rate in May, the weakest this year and down from April’s 14.4 million pace, Ward’s Automotive Group data showed.

Factory inventories decreased 0.2 percent in May for a second month, today’s report showed. The draw down in stockpiles may prompt some economists to cut estimates for second-quarter gross domestic product.

Shipments rise

Factory shipments climbed 0.5 percent in May, the report also showed. The gain in sales combined with the drop in stocks brought the inventory-to-shipments ratio down to 1.27 months, the lowest reading since September, from 1.28 months in April.

Manufacturing accounts for about 12 percent of the economy and has been at the forefront of the recovery that began June 2009. Cooling business investment means it may offer less support to the expansion in the second quarter.

The Institute for Supply Management’s index fell to 49.7 in June, the first contraction in almost three years and worse than the most-pessimistic forecast in a Bloomberg News survey, a report showed yesterday.

Regional figures reinforce the slowdown. Manufacturing in the Philadelphia area shrank in June at the fastest pace in almost a year, while New York-region factories expanded at the slowest rate in seven months.

Global slowdown

Executives at Wilmington, Del.-based DuPont, the third- largest U.S. chemical maker, said while growth in North America is holding up, they are concerned about a slowdown in China and Germany’s dependence on exports.

“My number one worry is what will happen in Europe over the next six to nine months,” Diane Gulyas, group vice president of DuPont’s performance-materials segment, said on a conference call with analysts on June 14.

Joy Global, the maker of P&H and Joy mining equipment, cut forecasts for full-year earnings and revenue as companies ease capital expenditure amid concern over the slowdown in China. Equipment orders fell 62 percent in the fiscal second quarter from a year earlier primarily due to a weak U.S. coal market, the Milwaukee-based company said in May.

The rest of the world is reporting weaker results. Euro-area manufacturing contracted for an 11th straight month in June as Europe’s debt crisis sapped demand. A manufacturing purchasing managers’ index for China fell to 48.2 last month from 48.4 in May, HSBC Holdings Plc and Markit said yesterday.

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