Durable Goods Orders Surge in May

Orders for big-ticket manufactured goods from U.S. factories rebounded sharply in May, helped by strong demand for defense-related goods, transportation equipment and electronics.

Durable goods orders -- a measure of demand for those items meant to last at least three years -- jumped 6% in May to an annual rate of $218.9 billion, the largest gain so far this year, the Commerce Department reported Wednesday. The rebound follows April's upwardly revised 5.7% drop, and surprised economists, who had been expecting a smaller 2.8% rise, according to a Reuters poll.

The rebound casts some doubt on recent talk of a slowdown for the demand side of the U.S. economy and for the manufacturing sector. The previous month's sharp drop in durable orders, along with similar declines in retail sales, housing market activity, and jobs growth, had started to convince many economists that the Federal Reserve's year-long efforts to raise interest rates was indeed curbing demand and slowing the economy.

Fed policymakers are currently meeting in Washington to discuss interest rates, and are slated to make an announcement at 2:15 p.m. EDT. They are widely expected to refrain from moving rates higher, prompted by several signs of slowing economic activity. But they are likely to caution that the recent economic slowdown could be temporary, as is often seen in the second quarter, and will probably warn that accelerated growth and its evil side effect, inflation, remain a distinct threat.

The Fed has raised short-term interest rates six times in the past year, which also pushed up consumer and business financing rates for big-ticket purchases, in an attempt to ease demand and slow the economy. In its most recent move, on May 16, the Fed raised rates by half a percentage point instead of the quarter-point increments that had marked the previous five increases.

May's rebound in durable orders was led by a 26% surge in orders for electronics and electrical equipment, a broad category which includes everything from computer chips to industrial equipment to washing machines. The gain was the largest in nearly three years, and follows April's 17.6% drop in electrical goods orders.

Orders for transportation equipment also rose a solid 3.5%, helped by steady demand for cars, trucks and ships. The gain follows April's 6.4% decline in transportation orders.

Government and international orders for defense-related goods also rose a sharp 11.7%, following a 12.7% drop in April.