Factory orders post modest gain

July 2, 2008 9:57:33 AM PDT
Orders to U.S. factories turned in the weakest performance in three months in May, reflecting slumping demand for autos, heavy machinery and steel. The Commerce Department reported Wednesday that factory orders rose by 0.6 percent in May, less than half the gains turned in during April and March. It was the poorest showing since factory orders had fallen by 0.4 percent in February.

The May performance was in line with expectations. Economists are watching to see how big an impact the overall economic slowdown will have on manufacturing, which has been hurt by troubles in the auto industry and housing-related industries.

However, that weakness has been offset by strength in exports, which have continued to rise as American manufacturers have benefited from a weak dollar, which makes their products more competitive overseas.

A report on Tuesday offered some hope that manufacturing may be starting to stabilize. The Institute for Supply Management's closely watched gauge of manufacturing activity rose to 50.2 in June, just above the 50-point level that signals expansion in the manufacturing sector. The index had declined for four consecutive months.

The orders report showed that demand for durable goods, items expected to last at least three years, were flat in May while demand for nondurable goods, products such as food and petroleum, rose by 1.2 percent.

Transportation orders rose by 2.5 percent, reflecting a big 10.3 percent surge in demand for commercial aircraft. That helped to offset a 1.6 percent drop in demand for motor vehicles, which have been tumbling this year as automakers have been battered by soaring gasoline prices, which have cut into demand for once-popular trucks and sport utility vehicles.

Demand for machinery was down by 5 percent, reflecting big declines in orders for construction machinery, mining equipment and industrial machinery. Orders for primary metals including steel were off by 2 percent.

Orders for computers and electronic products rose by 2.9 percent.


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