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Orders to US factories rise for first time in three months

An unemployment rate exceeding 8 percent is restraining household spending

Gulf News

Orders placed with US factories rose in May for the first time in three months, easing concern that manufacturing is faltering. Car sales for June also exceeded analysts’ estimates.

The 0.7 per cent increase in bookings followed a revised 0.7 per cent drop in the prior month, the Commerce Department said on Wednesday in Washington. The median forecast of economists in a Bloomberg News survey called for a rise to 0.1 per cent.

Europe’s debt crisis and a slowdown in Asian markets including China is restraining exports, weighing on the outlook for manufacturers like Joy Global and DuPont Business investment, a mainstay of growth, will provide less of a boost to the economy as a weakening labour market holds back American consumers from boosting purchases of vehicles and other goods.

“Orders were so weak in prior months that the healthy gain in May is not enough to buck the softening trend,” said Ellen Zentner, a senior economist at Nomura Securities International in New York, who projected a gain of 0.9 per cent. “Business caution has become more pervasive.”

Stocks rallied after the report. The Standard & Poor’s 500 Index climbed 0.6 per cent to 1,374.02, a two-month high, at the close of trading in New York.

Estimates in the Bloomberg survey of 52 economists ranged from a drop of 1.3 per cent to a gain of 1 per cent. The Commerce Department revised the April figure from a previously reported drop of 0.6 per cent.

Excluding Transportation

Excluding transportation equipment, factory orders increased 0.4 per cent in May after falling 0.9 per cent the prior month.

Bookings for durable goods, those meant to last at least three years climbed 1.3 per cent, also the first gain in three months. They make up just over half of total factory demand. Wedesday’s reading was more than the 1.1 per cent gain estimated by the government on June 27. Demand for non-durable goods, including petroleum, increased 0.2 per cent.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, advanced 2.1 per cent, more than the 1.6 per cent gain estimated last week, after falling 1.5 per cent the prior month.

Shipments of those goods, used in calculating gross domestic product, increased 0.6 per cent, more than previously projected, after dropping 1.5 per cent in April.


Household spending:

An unemployment rate exceeding 8 per cent is restraining household spending, which accounts for about 70 per cent of the economy. Cars and light trucks sold at a 13.7 million annual rate in May, the weakest this year and down from April’s 14.4 million pace, Ward’s Automotive Group data showed.

Sales accelerated to a 14.1 million annual rate in June, helping the industry stay on pace for the best year since 2007. The pace compares with the 13.8 million light-vehicle rate that was the average estimate of 15 analysts surveyed by Bloomberg.

Factory inventories decreased 0.2 per cent in May for a second month, today’s report showed. The draw down in stockpiles may prompt some economists to cut estimates for second-quarter gross domestic product.

Factory shipments climbed 0.5 per cent in May, the report also showed. The gain in sales combined with the drop in stocks brought the inventory-to-shipments ratio down to 1.27 months, the lowest reading since September, from 1.28 months in April.

Manufacturing accounts for about 12 per cent of the economy and has been at the forefront of the recovery that began June 2009. Cooling business investment means it may offer less support to the expansion in the second quarter.

ISM Index

The Institute for Supply Management’s index fell to 49.7 in June, the first contraction in almost three years and worse than the most-pessimistic forecast in a Bloomberg News survey, a report showed on Wednesday.

Regional figures reinforce the slowdown. Manufacturing in the Philadelphia area shrank in June at the fastest pace in almost a year, while New York-region factories expanded at the slowest rate in seven months.

Executives at Wilmington, Delaware-based DuPont, the third- largest U.S. chemical maker, said while growth in North America is holding up, they are concerned about a slowdown in China and Germany’s dependence on exports.

“My number one worry is what will happen in Europe over the next six to nine months,” Diane Gulyas, group vice president of DuPont’s performance-materials segment, said on a conference call with analysts on June 14.

Joy Global, the maker of P&H and Joy mining equipment, cut forecasts for full-year earnings and revenue as companies ease capital expenditure amid concern over the slowdown in China. Equipment orders fell 62 per cent in the fiscal second quarter from a year earlier primarily due to a weak US coal market, the Milwaukee-based company said in May.

The rest of the world is reporting weaker results. Euro- area manufacturing contracted for an 11th straight month in June as Europe’s debt crisis sapped demand. A manufacturing purchasing managers’ index for China fell to 48.2 last month from 48.4 in May, HSBC Holdings and Markit said on Wednesday.