May Factory Orders Jump 4.1%

Orders for goods made in U.S. factories rose 4.1% in May, the biggest monthly gain since December 1992, as demand picked up for such big-ticket items as electrical and electronic equipment and transportation-related products.

Factory orders, a measure of demand for U.S.-manufactured goods, rose to $385.7 billion in May, the Commerce Department said Thursday. The rise offset the weakness seen in April, when orders fell 3.8%, to $370.4 billion.

The data came as a slight surprise to economists, who had been expecting a 3.4% rise in orders, according to a Reuters poll.

The pickup in May orders was propelled by a 26.4% surge in demand for electrical and electronic equipment, a broad category that includes machinery, appliances and high-tech electronics. Orders in that area had slumped 17.6% in April.

Orders for transportation-related equipment also picked up 3.3% in May after dropping 6.3% in April. Excluding the transportation component, which is often volatile because it includes such hugely expensive products as airplanes and ships, factory orders rose 4.3% in May.

Over all, orders for durable goods -- items meant to last at least three years -- rose 6.1% following April's 5.8% decline. Nondurable goods orders were up 1.7% after falling 1.2% in April.

There is some evidence that factory orders moderated in June. A survey by the National Association of Purchasing Management, released Monday, suggested that manufacturing activity slowed in June, largely due to slower growth in new orders for manufactured goods.

But the solid rebound in demand for manufactured goods in May is likely to cause skepticism about the degree to which the U.S. economy is slowing. The April drop in factory orders, along with similar declines in April retail sales, housing market activity and May job creation, had started to convince some economists that the Federal Reserve's efforts to raise interest rates were slowing the U.S. economy. In theory, higher interest rates slow demand by making it more costly for consumers and businesses to borrow and spend, decreasing the risk of inflation.

The Fed has raised rates six times in the past year, but held rates steady at its most recent meeting on June 28, citing "tentative and preliminary" signs of an economic slowdown. But many economists expect that the Fed will continue to raise rates when it meets next in August, saying that economic growth still appears to be well above the historical trend.

Other measures of the economy Thursday also pointed to further strength. A separate report from the Labor Department showed that the number of Americans registering for first-time unemployment benefits fell 12,000 to 296,000 in the week ended July 1. The Labor Department will release its monthly unemployment and payrolls data for June on Friday morning.

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