Factory Orders Dip By Smaller-Than-Expected In May

Tuesday, July 3rd 2007, 10:29 am

By: News On 6

WASHINGTON (AP) _ America's factories saw demand for their products dip by a smaller-than-expected 0.5 percent in May, suggesting that despite some pockets of weakness the manufacturing revival remains intact.

The drop reported by the Commerce Department Tuesday came after new orders for a range of manufactured goods rose by 0.5 percent in April. The decline in May mostly reflected weaker demand for airplanes. Fewer orders for construction equipment, industrial machinery and household appliances also figured prominently into the overall decline _ byproducts of the housing slump.

The 0.5 percent dip was actually a much better showing than the deeper, 1.2 percent decline that economists said they were expecting.

And other more forward-looking reports suggest the manufacturing sector and the economy are rebounding.

The Institute for Supply Management reported Monday that its manufacturing index rose to 56 in June, an improvement from 55 in May and a sign of healthy activity in the sector. A reading above 50 indicates expansion, while a reading below that threshold suggests contraction.

In Tuesday's manufacturing report, the weakness was concentrated in demand for big-ticket ``durable'' goods _ costly manufactured items expected to last at least three years. Orders for durables fell by 2.4 percent in May, following a 1 percent rise in April.

The weakness in durable goods in May reflected a big drop in airplane orders as well as bookings for construction, industrial equipment and household appliances.

Demand for ``nondurables,'' such as food and chemicals rose by a strong 1.6 percent in May, however. That was an improvement from the flat reading registered in April.

A range of food and rubber products, tobacco, leather goods, chemicals and plastics all posted an increase in orders for May. But demand for clothing, paper and pharmaceuticals and medicines declined.

The latest manufacturing report comes as the economy is emerging from a nearly yearlong sluggish spell.

The national economy barely grew in the January-to-March quarter, expanding at a pace of just 0.7 percent, the weakest in more than four years. Many economists, however, predict growth in the April-to-June period will bounce back at a pace of anywhere from a 2.3 percent to 3 percent.

With the outlook for growth to revive but inflation to recede somewhat in coming quarters, the Federal Reserve last week left a key interest rate at 5.25 percent, where it has stood for a year. Many economists believe the Fed could leave rates where they are through the rest of this year.