U.S. factory orders rise 2.1 per cent in May

Orders to U.S. factories rose in May, helped by a third straight month of stronger business investment. The gains suggest manufacturing may be picking up after a weak start to the year.

The Commerce Department said Tuesday that factory orders rose 2.1 per cent in May. April’s increase was revised higher to 1.3 per cent from 1 per cent.

Most of the increase in May was due to a big jump in volatile commercial aircraft demand. Still, businesses also ordered more machinery, computers and household appliances.

A category of orders that’s viewed as a proxy for business investment plans _ which excludes the volatile areas of transportation and defence _ rose 1.5 per cent. That was even stronger than solid gains in the previous two months.

This measure of business investment hadn’t increased for three straight months since the fall of 2011. The consecutive gains suggest U.S. manufacturing could improve in the second half of the year.

Manufacturing has struggled this year after helping propel the economy in the first three years after the recession ended. U.S. factories have seen less demand for exports because of weaker global growth. And businesses reduced their investment in machinery and equipment in the first quarter.

The May report showed that orders for long-lasting goods, from power generation equipment to ships and boats, rose 3.7 per cent in May. Orders for nondurable goods, including paper, chemicals and oil, rose 0.7 per cent.

Demand for commercial aircraft surged nearly 51 per cent, after an 18.4 per cent gain in April and a drop of 43.3 per cent in March.

Orders for autos and auto parts fell 2 per cent, after jumping 4.1 per cent in April. Still, the decline is likely temporary.

U.S. automakers on Tuesday reported healthy sales gains in June. Ford Motor Co.’s sales soared 13 per cent in June compared with a year earlier. Chrysler’s sales rose 8 per cent. That suggests auto production will resume a healthy pace in the coming months.

The overall gain in factory orders follows another report that shows manufacturing activity picked up in June. The Institute for Supply Management’s index of manufacturing activity rose to 50.9 from 49. Any reading above 50 indicates expansion.

The ISM index showed that new orders and production both jumped. But a gauge of employment fell sharply, suggesting factories cut jobs for the fourth straight month.

The U.S. economy expanded at only a 1.8 per cent annual rate in the first three months of the year, the Commerce Department said last week. That was much slower than its previous estimate of a 2.4 per cent rate.

The main reason for the downgrade was consumers spent less on services than initially thought. Spending on long-lasting factory goods, such as cars and appliances, was stronger.

Economists expect growth remained tepid in the April-June quarter. Most estimates range between a rate of 1.5 per cent and 2 per cent.

—The Associated Press