Durable goods orders fell more than forecast in May, the first report to cast doubt on the strength of a projected rebound in business investment.
Demand for goods meant to last several years fell 2.8 percent, the first drop in four months, the Commerce Department said Wednesday. Excluding transportation equipment, orders dropped 1 percent.
The decline was led by fewer orders for aircraft, metals and machinery. A reluctance to buy new equipment, along with a persistent housing slump, could call into question Federal Reserve forecasts for an economic rebound later in the year. Policymakers, whose two-day meeting ends Thursday, are projected to keep interest rates unchanged.
“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.”
Economists were expecting a 1 percent drop in durable goods orders. Excluding transportation equipment, orders were forecast to rise 0.2 percent.
“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, Mass. “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 such record-keeping began in 1992. The last time bookings for durable goods rose for three consecutive months was from April through June 2005.
Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent, the most since January. Shipments of those items, used in calculating gross domestic product, fell 0.2 percent.
Orders for commercial aircraft slumped 23 percent in May. Chicago-based Boeing Co. received 92 plane orders in May, down from 136 a month earlier, according to its Web site.
Also Wednesday, the Federal Reserve Bank of Chicago said its Midwest manufacturing index dropped 0.2 percent in May. The index covers Illinois, Michigan, Indiana, Wisconsin and Iowa.
Regional output fell in three of the four major categories that make up the index: machinery, autos and resources. Only the steel sector posted an increase last month, up 0.9 percent.
