Orders for durable goods, those often large-ticket consumer and business products designed to last at least three years, rose by 1.1% last month, more than double the nominal 0.4% increase that had been forecast. That solid gain compared with a 0.2% drop in April. We caution, though, that this is a notoriously volatile series and that month-to-month forecasts are not overly reliable. In fact, swings from one month to the next can be large, at times.
Still, this increase, the first in three months, was encouraging. The gain, meanwhile, was led by orders for machinery, defense equipment, and automobiles. A key barometer of business investment also rose in May, as orders for nondefense capital goods excluding aircraft jumped by 1.6%. That gain came after back-to-back monthly declines in March and April.
Manufacturing has played a major role in the tepid business expansion to date, including being a key source of new jobs. And the employment sector needs that help, as just 69,000 jobs were added in May--about a third of the level needed to materially bring down the jobless rate. Last month, meantime, only 12,000 manufacturing jobs were added, following an even less impressive 9,000 new hires in April. Overall, though, manufacturing has been a notably positive presence on the employment front for the past couple of years. Perhaps this pickup in durable goods orders could presage some increasing strength on the payroll side going forward. The next report on non-farm payrolls is due out a week from this Friday.
In the meantime, excluding orders related to defense, durables were 0.7% higher in May than during the prior month. In April, such orders had bucked the aggregate downtrend by rising 0.9%.
All told, new orders for manufactured durable goods in May increased by $2.3 billion, to $217.2 billion. At the same time, shipments of durable goods, up in five of the past six months, increased by $1.5 billion last month, or 0.7%. Unfilled orders for manufactured durable goods declined by just 0.1% last month.
Overall, this was a decent report, but one that must be viewed very carefully and not overreacted to given the volatility of this series. Little is changed, moreover, by this data, and we still look for the economy to just inch forward by about 2% in the fast-closing second quarter.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.