July 3 (Bloomberg) -- Factory orders fell less than predicted in May and Americans signed fewer contracts to buy existing homes, reinforcing forecasts that manufacturing will help overcome the housing slump.
Orders placed with U.S. factories fell 0.5 percent after a 0.5 percent gain in April, the Commerce Department said in Washington. The National Association of Realtors' index of contracts to buy previously owned homes unexpectedly dropped 3.5 percent to 97.7, the lowest since September 2001.
Economists and the Federal Reserve predict growth will accelerate from its first quarter pace, the weakest since 2002, even as housing remains a burden. Fed Chairman Ben S. Bernanke said last month there was no sign of ``major spillovers'' from the housing slide. Industry reports for June show manufacturers are raising production as businesses spend on investment.
``The second half is coming together almost perfectly according to the Fed's plan,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina. ``Housing is going to be a drag but if we get some strength in business spending then the economy will be able to handle it.''
Demand for computers, electronics and fuel helped make up for a decline in aircraft bookings in May, the Commerce Department report showed. Excluding transportation equipment, bookings increased 0.7 percent after rising 1.0 percent.
Factory orders were forecast to fall 1.2 percent after a gain of 0.3 percent reported earlier for April, according to the median estimate in a Bloomberg survey of 67 economists. Forecasts ranged from a 1.9 percent decline to a gain of 0.5 percent.
Treasuries Fall, Stocks Rise
Investors shrugged off the housing report, with Treasury securities dropping and stocks rising. The yield on the benchmark 10-year note was 5.04 percent at 12:10 p.m. in New York, up from 4.99 percent late yesterday. The Standard & Poor's 500 added 4.04 to 1523.47. Trading may be less than usual as markets close early today before the Independence Day holiday tomorrow.
``Economic growth will be fairly healthy in the second half, though housing itself will be a drag,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. ``The factory sector is rebounding.''
Economists expected pending sales to rise 0.5 percent, following an originally reported decline of 3.2 percent the prior month, according to the median of 27 forecasts in a Bloomberg News survey of economists. Estimates ranged from a drop of 2.5 percent to an increase of 2 percent.
Last Recession
Today's report showed that the May reading was the lowest level since September 2001, when the economy was in the midst of the last recession. April pending home resales were revised to a decline of 3.5 percent.
Pending resales decreased 13.3 percent from May 2006. The measure of pending home resales is considered a leading indicator of sales because it tracks contract signings. The NAR's existing-home sales report tracks closings, which typically occur a month or two later.
Fed officials have said the housing slump may take longer to ease than previously anticipated. They kept the target overnight interest rate unchanged at 5.25 percent last week and reiterated that the economy will continue to grow at a ``moderate'' pace.
Housing `Near Bottom'
Some executives and officials have indicated optimism that the housing recession, the worst since 1991, may be past its worst. Treasury Secretary Henry Paulson said June 20 that ``we are at or near the bottom.''
``You'll see the economy begin to pick up in the third and fourth quarters'' and the slowdown in home sales is ``just about to be over,'' Kenneth Lewis, chief executive officer of Bank of America Corp., said in an interview last month in New York.
Orders for durable goods, which make up about 55 percent of factory demand, fell a revised 2.4 percent after a 1 percent gain in April. The government last week, in a preliminary estimate, reported a 2.8 percent decline in durables orders for May.
Orders for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 2.1 percent after rising 2.0 percent. The Commerce Department had previously estimated a 3 percent drop. Shipments of these goods, part of the government's calculation of gross domestic product, rose 0.1 percent after a gain of 0.9 percent in April.
Business Investment
Business fixed investment, which includes spending on software and equipment, will probably grow at an annual rate of 6.4 percent this quarter, up from a 2.6 percent pace in the first quarter, according to Lehman Brothers Holdings Inc. Such spending fell 3.1 percent in the final three months of last year.
Civilian aircraft orders fell 22.6 percent after declining 11 percent in April. Chicago-based Boeing Co., the world's second-biggest commercial-aircraft maker, said it received 92 orders in May, down from 136 the prior month. The government's figures don't always correlate with industry reports.
Bookings for machinery fell 1.4 percent after declining 1.7 percent, today's report said.
Orders for computers and electronic products rose 4.2 percent after rising 1.2 percent. Bookings for automobiles rose 3.5 percent after declining 4.1 percent.
Food, Chemicals
Bookings for non-durable goods, including food, petroleum and chemicals, rose 1.6 percent in May after no change in April.
Inventories rose 0.3 percent after rising 0.4 percent, Commerce Department figures showed. Today's report showed businesses had enough goods to last 1.23 months at May's sales pace, down from 1.24 months.
United Technologies Corp.'s Pratt & Whitney unit, the world's second-biggest jet engine maker, last month won an order valued at as much as $1 billion from Spain's Grupo Marsans for engines and service for Airbus SAS's A330.
Other reports show a pickup in demand for factory goods.
Manufacturing growth in the U.S. accelerated last month to the highest level in 14 months, boosted by an increase in production and new orders, based on the Institute for Supply Management's factory index. Yesterday's report showed new orders climbed to the highest since February last year.
The National Association of Purchasing Management-Chicago reported last week that its business barometer held near a two- year high, signaling strength in manufacturing.
Manufacturing in the Philadelphia region accelerated in June at the fastest pace in more than two years as orders surged, according to a June 21 report from the Federal Reserve Bank of Philadelphia.
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