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Orders for Durable Goods Fall Again -- WSJ

27 Jun 2017 6:32 am
By Ben Leubsdorf 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the US print edition of The Wall Street Journal (June 27, 2017).

Demand for long-lasting factory goods declined in May for the second straight month, driven by a pullback in airplane orders as the U.S. manufacturing sector continues to find its footing.

Orders for durable goods -- products designed to last at least three years, such as jet planes and industrial robots -- decreased 1.1% from April to a seasonally adjusted $228.18 billion in May, the Commerce Department said Monday. That was the largest drop in six months.

Economists surveyed by The Wall Street Journal had expected a more-modest 0.4% decline last month. April orders were revised down to a 0.9% decline, which followed four straight monthly rises.

"The broad story in terms of capital spending appears to be wait-and-see, " Stephen Stanley, chief economist at Amherst Pierpont Securities said in a note to clients. "Business sentiment popped after the election, and I think that a lot of executives are excited to invest in and expand their businesses, but they would prefer to wait and see what happens with corporate tax reform before deciding how and how much to execute."

Last month's fall was led by sharp declines in two volatile categories, a 30.8% drop in military-aircraft orders and a 11.7% drop in orders for civilian airplanes and parts. Excluding the transportation segment, orders rose 0.1% in May.

More broadly, factory demand has strengthened in 2017. Durable-goods orders rose 2.8% in the first five months of 2017 compared with a year earlier. A closely watched proxy for business investment in new equipment, orders for nondefense capital goods excluding aircraft, fell 0.2% in May from the prior month but was up 2.3% year-to-date.

Monday's report was "a bit weaker than expected," but "the data are volatile and through the volatility trends have generally been up -- modestly at least," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics, in a note to clients.

The U.S. manufacturing sector gained traction over the past year after a weak stretch in 2015 and into 2016. Falling oil prices pressured the domestic energy industry, while a strong dollar and global weakness weighed on foreign demand for U.S. exports.

Now, the global economy has picked up, boosting international trade flows. World oil prices stabilized, though they have moved lower in recent weeks. The dollar's value jumped after last year's presidential election but has moved lower this year.

Total U.S. industrial production rose 2.2% in May from a year earlier, including 1.4% growth for manufacturing output, according to Federal Reserve data. A private-sector gauge of U.S. manufacturing activity, produced by the Institute for Supply Management, showed expansion in May for the ninth consecutive month.

Capital expenditures have rebounded modestly, too. A broad measure of U.S. business spending on equipment such as computers and machinery, fixed nonresidential investment in equipment, rose in the first quarter of 2017 and the fourth quarter of 2016 following four consecutive quarterly declines.

"Business investment, which was weak for much of last year, has continued to expand," Federal Reserve Chairwoman Janet Yellen told reporters this month. "And exports have shown greater strength this year, in part reflecting a pickup in global growth."

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires

June 27, 2017 02:32 ET (06:32 GMT)

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