Orders to United States factories for big-ticket durable goods products took a flying leap downward in May, realizing the biggest drop in orders in four months. Demand for airplanes, metals, and heavy machines was in decline, report the Associated Press and other news sources.
Airplane orders especially were off, down 22.7% from the month of April. While demand for airplanes is normally volatile from month to month, however, there was even a steep decline in orders for such things as electronic equipment and steel.
Economists had been predicting an approximate one percent drop-off in durable good orders, but the actual decline came to 2.8%, or nearly triple economists’ estimates. April had actually seen a gain in durable goods orders of 1.1%.
Orders to U.S. manufacturers for non-defense-related durable goods fell off by 3%, the worst decline since January’s 4.4%.
Stocks opened lower after futures prices declined in pre-market activity on Wednesday in the wake of the news. The Dow Jones Industrial Average lost nearly 40 points within the first 10 minutes of trading after the opening bell on Wall Street.
The stock market had closed lower on Tuesday, with investors worried about sub-prime mortgage funds’ troubled times and rising global interest rates.
The decline in durable goods orders signals a possible reluctance to invest in new machinery and equipment by companies in investors’ minds. Economists say that this reluctance could call in question the optimistic forecast by the Fed for a strong economy throughout the remainder of the year. Thus far, the central bank is expected to take no action to raise the current federal funds overnight lending rate of 5.25%.
“It’s clear that businesses are still somewhat risk averse and that they are being cautious in light of the softness in the economy. Capital spending is not moving forward with the strength we had hoped,” Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, told Bloomberg.
“We are looking at a slightly lower opening, although there is some good corporate news. The market remains in a very nervous state. Bailing out hedge funds is not good news for the market, so the pullback is still intact and its run has to continue for now,” Peter Cardillo, chief U.S. market economist at Avalon Partners, told MarketWatch.
Before the report was released today, economists had been predicting that corporations on the whole would steadily increase investments in equipment and that improving overseas orders to U.S. manufacturers would keep the economy strong.
MarketWatch, “U.S. stocks to open lower after durable goods report”
Bloomberg, “Orders for U.S. Durable Goods Fell More Than Forecast”
Associated Press, “Orders for Manufactured Goods Plunge”