A customer looks at washing machines
June 27 (Bloomberg) -- Orders for U.S. durable goods fell more than forecast in May, the first report to cast doubt on the strength of the rebound in business investment.
Demand for goods meant to last several years fell 2.8 percent, the first drop in four months, after a revised 1.1 percent gain in April that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders dropped 1 percent.
The decline, which was led by fewer orders for aircraft, metals, and machinery, spurred some economists to cut forecasts for economic growth this quarter. Federal Reserve policy makers, who predict a pick up in the pace of economic expansion later this year, are forecast to keep interest rates unchanged when their two-day meeting ends tomorrow.
``The optimism about business spending maybe was a bit overdone,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``The economic rebound will be pretty modest.''
Treasury notes extended gains after the report. The yield on the benchmark 10-year note fell about 4 basis points to 5.04 percent at 10:18 a.m. in New York.
Economists forecast durable goods would fall 1 percent after an initially reported 0.8 percent rise in April, according to the median of forecasts in a Bloomberg News survey.
Excluding transportation equipment, orders were forecast to rise 0.2 percent, according to the survey median, after a previously reported 1.9 percent gain.
`Risk Averse'
``It's clear that businesses are still somewhat risk averse and that they are being cautious in light of the softness in the economy,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Capital spending is not moving forward with the strength we had hoped.''
Economists prefer to track the durable goods figures excluding transportation because orders for aircraft and automobiles tend to be volatile from month to month, obscuring underlying trends in spending.
Total orders have never been up for four months in a row since comparable records began in 1992. The last time bookings for durable goods rose for three consecutive months was from April through June 2005.
Forecasts Trimmed
Following the report, economists at Morgan Stanley in New York lowered their forecast for economic growth this quarter to an annual pace of 3.8 percent from a previous estimate of 4.2 percent. HSBC Securities USA Inc. in New York lowered its estimate to 3.2 percent from 3.5 percent.
Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent, the most since January, after increasing 2.3 percent in April. Shipments of those items, used in calculating gross domestic product, fell 0.2 percent after rising 0.9 percent a month earlier. Unfilled orders for such goods rose 0.6 percent.
Orders for commercial aircraft slumped 23 percent in May after dropping 11 percent in April. Boeing Co. received 92 plane orders in May, down from 136 a month earlier, according to its Web site. The government's figures don't always correlate with industry reports.
Demand for machinery fell 1.6 percent and bookings for metals dropped 3.6 percent.
Inventories
Orders excluding of military gear fell 3.2 percent last month after rising 1.2 percent in April. Inventories of all durable goods rose 0.2 percent. Manufacturers had a 1.46 month's supply of durable goods on hand at the current sales pace in May, the same as in April.
The figures contrast with other reports this month that had shown a pick up in manufacturing as production ramps up to fill increasing orders.
Manufacturing in the Philadelphia region accelerated in June at the fastest pace in more than two years as orders surged, a June 21 report from the Federal Reserve Bank of Philadelphia showed. A similar index from the New York Fed rose to a one-year high.
The Fed factory reports followed a survey from the Institute for Supply Management, which said that manufacturing accelerated last month at the fastest pace in a year.
Manufacturing gained in a majority of Fed districts, the central bank said this month in its regional survey known as the Beige Book. The report will be used by policy makers at their meeting today and tomorrow, after which they are projected to keep interest rates unchanged for an eight consecutive time.
Corporate Investment
Before today's report, economists forecast increased corporate investment and improving demand from overseas would help revitalize growth after the economy expanded at the slowest pace in more than four years during the first quarter.
Some industries are still grappling with too much inventory.
Charlotte, North Carolina-based Nucor Corp., the second- largest U.S.-based steel company, said earlier this month second-quarter profit probably will fall because of slumping metal demand by automakers and homebuilders. U.S. shipments fell after customers stocked up on steel during the first quarter, the company said.
Industrial production stalled last month, in part because manufacturers of cars and machinery scaled back, according to a Fed report on June 15.
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