Factory Orders Jump as Inflation Stays Hot

Half the country thinks we are already in a recession but U.S. factory orders indicate that demand for good remains very high.

New orders for goods manufactured in the U.S. jumped 1.6 percent in May compared with the prior month, data from the Commerce Department showed Tuesday. Orders have been up for 12 of the last 13 months.

The gain was much stronger than expected. Economists had forecast a 0.5 percent gain after the 0.3 percent reported for April. The prior months’ figure was revised up to show a 0.7 percent gain.

New orders for durable goods—meant to last three years or more—increase 0.8 percent in May and 0.4 percent in April.

The figures are not adjusted for price changes so a large part of the gain is likely the result of consumers and businesses paying more for manufactured goods. The price of durable consumer goods, for example, rose 0.7 percent in May and one percent in April.

There were some signs of softening of demand in the report. Orders for household appliances fell three percent in May and 2.4 percent in April, which may indicate the strain that inflation and high gasoline prices have put on household budgets.

The real estate market also shows signs of emerging weakness. Construction spending declined in May by 0.8 percent, the government said Friday.  Spending on construction of single-family homes was flat for the month, which means it declined after adjusting for inflation. Orders for air-conditioning and ventilation equipment fell 1.4 percent in May but orders for furniture climbed 0.9 percent.

There was a two percent increase in orders for mining and drilling equipment, reflecting the high price of oil and natural gas.

The data on new orders contrasts with more recent signals that manufacturing activity slowed down significantly in June. The Institute for Supply Management’s purchasing managers index fell to the worst rating in two years in June. Reports from several regional Fed banks also indicate a contraction in manufacturing.