New orders for durable goods jumped in May for the second month running, as companies ramped up their spending after months of holding back, the commerce department said on Wednesday.
Separately, official figures showed that new home sales dipped last month, as buyers were lured by falling prices and rising rates of foreclosures of existing homes.
US durable goods orders rose by 1.8 per cent last month to $163.9bn, beating economists’ expectations of a decline. That matched April’s revised increase of 1.8 per cent. Orders however are down by 26.8 per cent compared with the same month last year.
Much of the May increase was fuelled by a sharp increase in demand for new machinery. Orders climbed by 7.7 per cent to $22.5bn and have risen three out of the last four months.
Excluding orders for transportation, which are considered volatile on a monthly basis, durable goods orders were up by 1.1 per cent in May. They were up by 1.4 per cent when factoring out defence orders, which rose by 7.4 per cent last month.
Computers and primary metals were in greater demand in May, while orders for motor vehicles, car parts and communication equipment declined.
The US manufacturing sector has been under severe pressure in the last year as global demand has dried up. A rise in orders for durable goods signals that companies could be ready to increase their production and capital spending.
Joshua Shapiro, chief US economist at MFR, said the manufacturing sector remained soft, but that businesses were now making up for cutting back too sharply earlier in the year during the “panic and paralysis” phase of the recession. In January durable goods orders fell by 7.8 per cent but have since increased in three of the last four months.
Factories will be ready to pick up the additional slack if new orders continue to rise, as many have recently been idled. Last week the Federal Reserve reported that the capacity utilisation rate, a measure of the proportion of plants in use, across all industries fell from to 68.3 per cent in May, the lowest level since 1967.
Orders for non-defence capital goods, excluding aircraft, rose by 4.8 per cent in May after declining by 2.9 per cent in April. It was the biggest increase in almost five years for this closely-watched measure of spending.
“These data suggest that the recession may be drawing to a close,” noted John Ryding and Conrad DeQuadros, economists at RDQ Economics.
Meanwhile, the US housing market continues to wrestle for a recovery. The commerce department said that sales of new US homes fell by 0.6 per cent to 342,000 in May, disappointing analysts’ predictions of an increase.
These results came a day after new data showed that existing home sales jumped by 2.4 per cent, as buyers snapped up distressed properties at the bottom end of the market. Economists argue that those sales are coming at the expense of purchases of new homes, and that buyers remain fearful of investing in a depreciating asset class.
The median price of a new home fell to $221,600, which is 3.34 per cent lower than a year ago.
In spite of falling prices, inventory of new homes remains elevated relative to sales. The commerce department estimates that 292,000 new homes were for sale in May, representing a 10.2-month supply at the current sales rate.