FinancialAdvisor's College Class (FACC)

[FinancialAdvisor]

U.S. May Durables Orders Rise 5.5%; Ex-Transport. Falls 0.2%

U.S. May Durables Orders Rise 5.5%; Ex-Transport. Falls 0.2%

June 24 (Bloomberg) -- U.S. orders for durable goods rose in May by the most in more than a year, solely reflecting a surge in aircraft bookings, a government report showed. Demand declined for business equipment, suggesting corporate investment isn't improving.

Bookings for expensive items made to last at least three years increased 5.5 percent, the biggest rise since March 2004, after a 1.4 percent gain in April, the Commerce Department said today in Washington. Excluding transportation equipment, orders unexpectedly dropped 0.2 percent in May, the third decline in the last four months.

With inventories high and fuel costs rising, investment in new equipment may be slow to recover in coming months, posing a risk for economic growth. Manufacturers have enough goods on hand to fulfill 1.41 months supply at the current sales pace, unchanged from a month earlier and close to a two-year high.

``We are seeing a temporary slowdown associated with working off a slight inventory buildup,'' said Louis Crandall, chief economist at Wrightson ICAP LLC, in Jersey City, New Jersey, before the report.

Economists expected durable goods orders to rise 1.5 percent, based on the median of 64 forecasts in a Bloomberg News survey, after a previously reported 1.9 percent increase in April. Estimates ranged from a decrease of 0.6 percent to a 5 percent rise. Orders excluding transportation equipment were forecast to rise 0.5 percent after a 0.7 percent April drop.

Orders for transportation equipment jumped 21.2 percent, the most since July 2002, after rising 7.8 percent in April. Bookings for motor vehicles rose 0.2 percent and aircraft orders surged 165 percent.

Boeing Co., the world's No. 2 aircraft maker, said it received orders for 200 planes last month, up from 14 in April.

Boeing

Bookings are still coming in this month. Boeing and Airbus SAS, the world's biggest maker of commercial aircraft, increased their orders for 2005 by more than half at the Paris Air Show last week, spurred by a rise in demand from Asian airlines.

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 2.3 percent last month, the most since October, after rising 1.7 percent. Shipments, which the government uses to construct quarterly gross domestic product figures, rose 0.2 percent after increasing 1.4 percent.

``The economy is relatively stable although growth is very sluggish,'' said Timothy Main, chief executive at Jabil Circuit Inc., in an interview June 22. ``Virtually all our customers would like to see a little bit stronger demand trends.''

Machinery

Main said the move among companies to outsource manufacturing to outside sources was driving demand rather than a pickup in growth. St. Petersburg, Florida-based Jabil is a maker of electronics for other companies.

Machinery orders decreased 1.9 percent last month after rising 2.6 percent in April. Orders for computers and electronic products fell 1.2 percent last month after decreasing 6 percent. Communications equipment orders declined 0.5 percent after slumping 19 percent.

Orders for defense hardware jumped 14 percent last month, following a 17 percent decrease.

Inventories of durable goods rose 0.3 percent after no change in April. Unfilled orders, a gauge of future production rose 1.9 percent, the most since June 2000 and primarily reflecting a backlog of commercial aircraft.

The rebound in aircraft orders is boosting demand in other industries. Alcoa Inc., the world's biggest aluminum maker, last week won a $2 billion contract to supply parts for Airbus as the planemaker seeks lighter materials to help improve the fuel efficiency of aircraft amid soaring oil prices.

Last month's inventory-to-sales ratio compares with 1.42 months in March and February that was the highest since November 2003. Total U.S. inventories rose at a $68.4 billion annual rate last quarter, the most in almost five years, a report last month from the Commerce Department showed.

Automakers are struggling to get rid of unwanted inventory. General Motors Corp. and Ford Motor Co. are cutting production after sales in May fell more than 10 percent, meaning fewer orders for parts suppliers.

Illinois Tool Works Inc., a supplier of parts to General Motors and Ford, last week reduced its second-quarter and full- year profit forecasts because of slowing demand for its products. The Glenview, Illinois-based company said demand for industrial adhesives, lubricants and auto parts was dropping. The North American auto industry provided about 29 percent of Illinois Tool's operating revenue in 2004, the company said in a government filing.

To contact the report on this story:
Carlos Torres in Washington [e-mail]


LINK: http://www.bloomberg.com/apps/news?pid=10000087&refer=top_world_news&sid=aC3LFic4Z.Qg