Orders to U.S. Factories Declined in May More Than Forecast

By Timothy R. Homan


July 2 (Bloomberg) -- Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC, discusses the June U.S. employment report released today and outlook for the economy. Payrolls declined by 125,000 last month as the government cut 225,000 temporary workers conducting the 2010 census, Labor Department figures showed. Employment at companies rose 83,000. The jobless rate fell to 9.5 percent from 9.7 percent. Lebas talks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Orders placed with U.S. factories declined in May more than forecast, a sign that manufacturing may be starting to cool.

The 1.4 percent decrease in bookings was the biggest since March 2009 and followed a revised 1 percent gain in April, the Commerce Department said today in Washington. Economists forecast orders would drop 0.5 percent, according to the median projection in a Bloomberg News survey.

Manufacturers are seeing a pause in demand after the industry helped the world’s largest economy emerge from the worst recession since the 1930s. Today’s figures underscore the Federal Reserve’s concerns that the European debt crisis poses a risk to a self-sustaining U.S. recovery.

“Manufacturing has been the star of the economy this year so any signs that conditions are turning would cause some concern,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. “The demand for products is slowing.”

Estimates of total orders in the Bloomberg survey of 70 economists ranged from a decline of 2 percent to a gain of 1.5 percent. The decrease in May was the first in nine months.

Manufacturing in June expanded at the slowest pace this year as factories received fewer orders and demand from abroad slowed, a report showed yesterday. The Institute for Supply Management’s manufacturing gauge fell to 56.2 from 59.7 a month earlier. Readings greater than 50 indicate expansion. The Tempe, Arizona- based group’s new orders measure fell to the lowest level since October.

June Employment

Earlier today, the Labor Department said the U.S. lost 125,000 jobs in June, reflecting a drop in the number of federal census workers and a smaller-than-forecast gain in private hiring. Factory employment rose by 9,000 in June, the smallest gain this year.

Demand for durable goods, which make up just over half of total factory demand, decreased 0.6 percent in May. Shipments of durable goods fell 0.3 percent.

Bookings of non-durable goods, including food, petroleum and chemicals, decreased 2.1 percent. The decline reflected a drop in the value of orders for petroleum products, clothing, fertilizers and beverages.

Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, increased 3.9 percent after a 2.8 percent drop in April. Shipments of these goods, used in calculating gross domestic product, rose 1.4 percent after rising 0.4 percent.

Factory Inventories

Factory inventories declined 0.4 percent in May, and manufacturers had enough goods on hand to last 1.25 months at the current sales pace.

Sales and inventories “are very much in sync,” Samuel Allen, chief executive officer of Deere & Co., said in a June 23 interview in reference to the manufacturer’s agricultural business. “We do believe the recovery is underway,” he said. “We do believe it is moving slowly.”

Manufacturing, which accounts for about 11 percent of the economy, faces the risk of a slowdown in exports as the debt crisis threatens Europe’s economy and factory activity in China cools.