Orders placed with U.S. factories rose in May, reflecting broad-based gains that signal manufacturing is stabilizing.
The 2.1% gain in bookings followed a revised 1.3% advance the prior month, the Commerce Department reported today in Washington. The median forecast of 61 economists in a Bloomberg survey called for a 2% increase. Demand for capital equipment increased more than the government estimated last week.
Sales of motor vehicles, gains in residential construction, and a boom in domestic energy production are helping make up for weakness in U.S. export markets. A pickup in business investment in new equipment and improving consumer demand would help bolster manufacturing and the expansion in the second half of 2013.
“If you look at manufacturing in general it’s been in one of the biggest expansionary tracks we’ve seen,” Drew Matus, deputy U.S. chief economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “The U.S. seems like it’s doing much better than the rest of the world.”
Estimates in the Bloomberg survey ranged from a 1% drop to a 4.9% gain after a previously reported 1% advance in April.
Factory orders excluding the volatile transportation component climbed 0.6% after a 0.2% increase the prior month, the Commerce report showed.
Bookings for commercial aircraft jumped 50.8% after climbing 18.4% in April. Chicago-based Boeing Co. received 232 aircraft orders in May after 51 in April.
Bookings for durable goods, which make up more than half of total factory demand, rose 3.7%. Today’s reading was little changed from the 3.6% gain the Commerce Department initially estimated on June 25.
Orders for non-durable goods including petroleum climbed 0.7%. The gain in non-durables reflected gains in fuel and chemicals, today’s report showed. Because the figures aren’t adjusted for inflation, they’re often influenced by changes in prices rather than shifts in demand.
Bookings for capital goods excluding aircraft and military equipment, an indicator of future business investment, increased 1.5% in May, a third consecutive advance. The reading was revised up from the government’s first estimate last week which showed a 1.1% gain.
Shipments of those goods, used in calculating gross domestic product, rose 1.9% in May, also more than estimated last week, after a 2.1% drop in April.
Orders for machinery increased 0.7%, led by a 7.6% jump in construction equipment. Demand for computers rose 8.8%.
Home values continue to rise, boosting sales and prompting builders to step up housing starts, which in turn generate more orders for building materials, furniture and appliances.
Construction spending climbed in May, led by the strongest expenditures on residential projects in more than four years, the Commerce Department reported yesterday. Los Angeles-based KB Home is among builders raising prices and buying land, President and Chief Executive Officer Jeffrey Mezger said.
“If a consumer feels good about their personal situation, they will always work through any obstacles and find a way to become a homeowner,” Mezger said on a June 27 earnings call. “With job growth accelerating and consumer confidence hitting a five-year high last month, I expect the housing recovery will continue its solid advance.”
Automakers and homebuilders are helping keep America’s factories busy. Vehicle purchases increased to a 15.24 million annual rate in May, the strongest in three months, according to figures from Ward Automotive Group. Purchases probably climbed to a 15.5 million rate in June, the most since June 2009, according to the median forecast of economists surveyed before industry data today.
Today’s report showed manufacturers are having trouble boosting stockpiles as demand improves. Factory inventories were unchanged in May after climbing 0.1% the prior month. Manufacturers had enough goods on hand to last 1.3 months at the current sales pace, down from 1.31 the prior month.
Manufacturing, which accounts for about 12% of the economy, is projected to keep contributing to growth this year. At the same time, the outlook may be clouded by across-the-board federal spending cuts that began on March 1, when lawmakers failed to reach a compromise on ways to reduce the debt.
A report yesterday showed American factories rebounded in June as orders picked up. The Institute for Supply Management’s manufacturing index climbed to a three-month high of 50.9 from 49 in May. A reading of 50 is the dividing line between expansion and contraction.