US durable goods orders drop 1.8 percent in May

Demand for manufactured goods in US falls for third time in four months, suggesting that business investments remain muted

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

A gauge of US business investment spending plans rose in May in a tentative sign of stabilisation in the manufacturing sector, which has been weak since the late summer of 2014.

But the lingering effects of lower oil prices and a strong dollar will continue to constrain factory activity for a while, economists say. Other data on Tuesday showed new home sales increased to a more than seven-year high in May.

Manufacturing is lagging an overall rebound in the economy after output slumped at the start of the year. Despite the weakness in factory activity, the Federal Reserve is expected to raise interest rates this year.

The Commerce Department said on Tuesday non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent last month. These so-called core capital goods orders slipped 0.3 percent in April.

"These are encouraging signs ... we need to see further gains over the next couple of months before we can more firmly conclude that manufacturing orders are rebounding," said John Ryding, chief economist at RDQ Economics in New York.

US stock indexes were trading higher and the dollar firmed against a basket of currencies. Prices for US Treasuries fell.

Manufacturing, which accounts for about 12 percent of the US economy, has been hurt by the strong dollar and investment spending cuts in the energy sector in the aftermath of a more than 60 percent plunge in crude oil prices last year.

The number of US oil drilling rigs has dropped to near five-year lows, prompting oilfield companies like Schlumberger and Halliburton to slash their capital expenditure budgets for this year.

However, the pace of decline in oil rig counts has slowed in recent weeks as crude prices edged higher.

The dollar has gained about 12 percent against the currencies of the United States' main trading partners since June 2014, taking a bite out of the profits of multinational corporations.

Factories also have been hampered by businesses placing fewer orders while working through a stockpile of goods accumulated last year.