Durable goods orders increased 1.1% in May, after declining the previous two months. Gains were broad-based with the largest increases coming from aircraft and defense orders. Most importantly, non-defense capital goods orders, which most closely track business investment, rebounded nicely after collapsing during the last two months. New gains were supported by a welcome rebound in orders for computer and communications equipment. Motor vehicles and parts continued to contribute to gains, but moderated from earlier in the year. Primary and fabricated metals were the only real weak spots, which were reflected in weak data from the steel industry earlier in the month.
Shipments of new orders were up 0.7% in May, the fifth increase in six months. Non-defense capital goods increased a more moderate 0.4%, and after declining last month, continue to point to less-than-stellar gains in business investment for the second quarter.
Bottom Line: The manufacturing sector looks like it could regain some momentum this summer after sluggish growth going into the spring. Increases are likely to remain muted compared to what we would like to see, however, this far into the recovery. Weak growth and uncertainty about the ongoing strength of the country continue to weigh on investment decisions.