Orders for durable goods rebound in May, a sign impact of Japan crises may be fading

6/24/2011

WASHINGTON — Businesses boosted their orders for machinery, electronics products and airplanes in May. The pickup suggests manufacturing is rebounding after the Japan crises made parts scarce and slowed production of some factory goods temporarily.

Orders for long-lasting manufactured products increased 1.9 percent in last month, the Commerce Department said Friday. A key category that signals business investment plans rose 1.6 percent.

The stronger demand follows a revised 2.7 percent decline in April that was largely the result of supply disruptions caused by Japan's March 11th earthquake and tsunami. The inability to get critical component parts in such industries as autos and electronics slowed U.S. manufacturing.

"The rebound in orders for new durable goods in May will help ease any fears that the economy is headed for a double-dip recession," said Paul Ashworth, chief U.S. economist at Capital Economics.

But Ashworth said the new report did not change his belief that "economic growth has slowed sharply over the past few months."

Orders for autos and auto parts rose 0.6 percent in May after having fallen 5.3 percent in April. The rebound in May in both autos and broader categories supports the view that the April lull was temporary.

A wide range of industries showed strength in May. Businesses boosted their orders for machinery 1.2 percent and demand for computers rose 1.3 percent. Communications equipment jumped 3.6 percent increase.

Businesses boosted demand for transportation products 5.8 percent. Much of that increase reflected a 36.5 percent surge in orders for commercial aircraft, a very volatile industry which had reported a big decline in production in April. Excluding the volatile transportation category, orders would have risen 0.6 percent in May after dropping 0.4 percent in April.

The capital goods category excluding aircraft is viewed as a proxy for business investment. It rose 1.6 percent after a 0.8 percent drop in April. Economists believe this category will show strength as companies respond to a one-year tax break aimed at spurring capital spending.

Manufacturing has been one of the strongest sectors of the economy since the recession official ended two years ago. However, there are concerns that the production pace could slow in coming months as businesses decide to scale back their restocking of inventories.

A closely watched gauge of manufacturing activity from the Institute for Supply Management showed manufacturing dipped to 53.5 in May from 60.4 in April. Readings above 50 indicate manufacturing is continuing to expand.

Regional manufacturing surveys put out by the Federal Reserve Banks of New York and Philadelphia also showed recent weakness.

But as production returns to more normal levels in Japan, economists are forecasting that disruptions to factory production in the United States will ease in coming months.