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Durables Orders in U.S. Probably Climbed in May After Slumping Prior Month

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Orders for durable goods probably climbed in May after slumping the prior month, easing concern manufacturing will share in an extended U.S. growth slowdown, economists said before a report today.

Bookings for goods meant to least at least three years increased 1.5 percent after a 3.6 percent drop in April that was the biggest in six months, according to the median of 69 estimates in a Bloomberg News survey. Another report may confirm the world’s largest economy cooled in the first quarter.

Factories will probably rebound as parts shortages stemming from the disaster in Japan wane, fuel costs ebb and a drop in the value of the dollar combined with growing economies overseas push exports up. The improvement last month would support the view of Federal Reserve officials, who this week said the slackening in the expansion may be due to temporary restraints.

“We will begin to see firmer manufacturing output in the months ahead,” said Robert Dye, senior economist at PNC Financial Services Group Inc. in Pittsburgh. “All indications are that Japanese manufacturers are making very good progress in recovering from earthquake damage. Supply chain bottlenecks are easing, so we’ll see firmer durable goods orders.”

The Commerce Department report is due at 8:30 a.m. in Washington. Estimates ranged from declines of 1.9 percent to increases of 5.5 percent.

Less Growth

Revised figures from the agency due at the same will show the world’s largest economy grew at a 1.9 percent annual rate from January through March after expanding at a 3.1 percent pace in the last three months of 2010, according to median forecast in a Bloomberg survey. The government’s third estimate of gross domestic product would be up from the 1.8 percent gain reported last month.

Manufacturing, which has been benefiting from a pickup in exports to countries like China and Brazil, began to cool in the aftermath of Japan’s earthquake in March and as raw-material costs climbed. Factory production dropped 0.5 percent in April, restrained by shortages of auto parts, according to figures from the Fed.

Reports this month indicate a recovery may already be at hand. Output climbed 0.4 percent last month on rising demand for machinery and computers, Fed data showed June 15. Autos and parts production fell 1.5 percent, representing an improvement from the 6.5 percent plunge in April as supply restraints eased.

‘Temporary’ Influences

“The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan,” central bankers said June 22 in announcing they will maintain record monetary stimulus.

“The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben S. Bernanke said at a press conference after the Federal Open Market Committee met.

Manufacturing shares have reflected the slowdown. The Standard & Poor’s Supercomposite Machinery Index, made up of 54 companies including Caterpillar Inc., Deere & Co. and Cummins Inc., dropped 6 percent in May, compared with a 1.4 percent decrease for the broader S&P 500 Index.

FedEx Corp. (FDX), operator of the world’s biggest cargo airline, is among companies projecting business will improve. The Memphis, Tennessee-based carrier this week forecast full-year earnings that may top analysts’ estimates as demand climbs.

“We believe the near-term softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers,” Frederick Smith, chairman and chief executive officer of FedEx, said on a June 22 conference call. “We believe the industrial sector will lead growth in the United States and overseas in the next two years, supporting shipping demand.”

By Alex Kowalski – Jun 23, 2011 9:01 PM PT

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© C Marshall Fabrication Machinery, Inc. 2011


C Marshall Fabrication Machinery, Inc.