June 25, 2020 / 12:55 PM / 14 days ago

U.S. core capital goods orders rebound in May

WASHINGTON (Reuters) - New orders for key U.S.-made capital goods rebounded more than expected in May, but recouped only a portion of the prior two months’ declines, suggesting business investment could lag the broader economic recovery from the COVID-19 pandemic.

FILE PHOTO: U.S. made plywood is shown for sale in Los Angeles, California, U.S., April 26, 2017. REUTERS/Mike Blake

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 2.3% last month as demand rose across the board, the Commerce Department said on Thursday. These so-called core capital goods orders dropped 6.5% in April.

Economists polled by Reuters had forecast core capital goods orders advancing 1.0% in May. Core capital goods orders fell 2.5% on a year-on-year basis in May.

Shipments of core capital goods rose 1.8% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. Core capital goods shipments declined 6.2% in April.

The economy is showing tentative signs of improvement as businesses reopen after being shuttered in mid-March to slow the spread of the respiratory illness.

Retail sales, building permits and new home sales rebounded strongly in May. But weak demand, rising COVID-19 infections supply chain disruptions, which are hampering business investment, pose a risk to the economic recovery.

Economists expect business spending to contract in the second quarter, the fifth straight quarterly decline. The Atlanta Federal Reserve is forecasting gross domestic product plunging at a record 45.5% annualized rate in the April-June quarter. The economy contracted at a 5.0% rate in the first quarter, the sharpest decline since the 2007-09 recession.

Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, surged 15.8% in May after tumbling 18.1% in April. The rise in orders is broadly in line with improvements in regional manufacturing, where activity pulled off record lows in June.

Demand for transportation equipment jumped 80.7% after plunging 48.6% in April. Boeing (BA.N) reported nine aircraft orders in May after receiving none in April, according to information posted on its website.

Boeing been hurt by the fallout from two crashes in Indonesia and Ethiopia, which led to the grounding of its best-selling 737 MAX plane since March 2019.

Orders for motor vehicles and parts rose 27.5% last month.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

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