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Durable goods orders rise
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June 24, 1999: 10:02 a.m. ET
May rebound in transportation, defense orders prompts 1.4 % rise
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NEW YORK (CNNfn) - Factory orders for big-ticket items rose at a stronger-than-expected pace in May, reflecting a surge in demand for industrial machinery and transportation equipment, the Commerce Department reported Thursday.
Total orders for durable goods rose 1.4 percent to $197.6 billion, exceeding analysts' expectations of a 1.1 percent gain. The increase was the ninth monthly gain in the past 12 and partly reversed April's revised 2.3 percent decline. April's drop initially was reported as 2.1 percent.
While the gains mostly stemmed from what are considered the two most volatile components of the durable goods index, transportation and defense, economists viewed the numbers as more evidence that revived demand overseas is boosting U.S. manufacturing activity and economic growth.
"The report suggests that industrial orders are trending higher as manufacturing recovers from the Asia crisis," said Ian Shepherdson, chief U.S. economist with High Frequency Economics. "There are no real signs of a slowdown."
New orders for transportation equipment jumped 9.5 percent in May after declining a revised 12.6 percent in April. Defense orders also recorded a notable increase, rising 17.6 percent after declining a revised 35.5 percent in April. Both categories are considered volatile components of the overall index.
Strong Overseas Demand
Excluding transportation products, orders declined 0.7 percent in May after gaining a revised 0.9 percent in April, the report said. Analysts had expected no percentage change in that grouping. Orders excluding defense items, meantime, rose 1 percent in May after falling a revised 0.9 percent in April. Analysts had expected a 0.6 percent increase in that category.
New orders for primary metals rose 0.7 percent, the second consecutive monthly gain, reflecting stronger demand overseas for raw materials, Shepherdson said. Orders for industrial machinery and equipment, by contrast, slipped 2.5 percent, while electrical goods orders dropped 1.5 percent.
Durable goods are defined as typically expensive products with a life span of three or more years. Cars, refrigerators, airplanes, photocopiers and defense items like tanks and missiles are among the many products categorized as durable goods.
To be sure, overall demand for durable goods suggests U.S. manufacturers will be busy taking new orders and keeping the assembly lines rolling in the months ahead, another sign that the U.S. economy remains buoyant and may need to be tempered with a rate rise, said Rick MacDonald, a U.S. economist with Standard & Poor's MMS in San Francisco.
"If anything, it suggests ongoing momentum, which indicates there may be more than one" interest rate increase in 1999, he said. While not as significant as the monthly employment or inflation reports, "it does have some implications for the Fed," he said.
Fed officials will gather in Washington next Tuesday and Wednesday to discuss monetary policy and decide whether to lift short-term interest rates to cool the economy and keep inflation at bay. 
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Commerce Department
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