Durable Goods Orders Surge 4.1% in Month

Orders for “big ticket” durable goods in May posted their biggest increase in six months, prompting some analysts Tuesday to label the 4.1% gain as further evidence that the U.S. economy is rebounding from its winter doldrums.

The Commerce Department reported that orders for manufactured durable goods totaled $103.8 billion last month, with the gain propelled primarily by a huge 50.2% increase in orders for military hardware.

The overall increase matched a 4.1% January gain and was the biggest advance since an 8.2% November rise.

Encouraging Sign

The U.S. manufacturing sector has been battered in recent months as it watched sales slip away to foreign competitors. This trade hemorrhage, caused by the strength of the dollar, is blamed for the steep slowdown in economic growth that occurred during the first three months of 1985.

But analysts said Tuesday’s report provided encouragement that the U.S. manufacturing sector--and the whole economy--may improve in the days ahead.

“I think we are out of the doldrums. People are beginning to realize that the economy is back on track,” said Michael Evans, head of Evans Economics, a Washington consulting firm. “The decline in interest rates is prompting businesses to go ahead with projects they had put on the shelf.”

The government last Thursday estimated that the economy during the current April-June quarter would advance at an annual rate of 3.1%--10 times faster than the 0.3% level turned in from January through March.

Evans predicted that this rebound would continue, with growth of between 4% and 5% likely in the second half of the year as both consumption and investment spending continue to grow.

Allen Sinai, chief economist for Shearson Lehman Bros., called the big increase in durable goods orders a “positive sign. It supports the view that the economy is emerging from the growth recession with little chance of a relapse.”

But he cautioned that one month’s data is not enough to guarantee this scenario.

“It is too early to tell whether interest rates have fallen enough to sustain revived growth of over 3%,” he said.

However, Commerce Secretary Malcolm Baldrige predicted that interest rates will fall further in coming months if Congress can reach agreement soon on a budget deficit reduction package. He said this would “encourage renewed growth in manufacturing.”

The 4.1% jump in orders for durable goods--items expected to last three or more years--followed a tiny 0.2% April gain and sharp declines of 2.9% in March and 2.5% in February.

Planning to Expand

Orders for military hardware climbed 50.2%, with most of the increase coming in the transportation category. Defense orders, which are highly volatile, had dropped 2.6% in April after rising 32.5% in March.

Even with the surge in military orders removed, demand for manufactured goods rose 1.1% in May.

Orders for non-defense capital goods rose 0.9%, which analysts took as an encouraging sign that businesses are beginning to go forward with plans to expand and modernize their production facilities. The May gain followed declines of 6.6% in April and 7.8% in March.

By industry, orders for transportation equipment were up 12.6%, following a 6.4% April increase. Excluding defense, transportation orders showed little change, with a small increase in the automotive industry offsetting a decline in orders for commercial aircraft.

Orders for machinery were up 4.1%, partially offsetting a 9.8% drop in April, while orders for primary metals such as steel fell 7.1% in May, following an 11.5% gain in April.

Shipments of durable goods in May increased a slight 0.5% to $102.8 billion following an even smaller 0.1% gain in April.