Factory Orders Dip 0.1% During May

U.S. factory orders dipped 0.1% in May as continued weakness in civilian demand offset a huge increase in contracts for military hardware, the Commerce Department said Wednesday.

The department said orders edged down to $193 billion in May, the third decline in the past four months.

Analysts said the decline, which would have been an even steeper 1.3% plunge without the jump in defense orders, emphasized how sluggish economic activity has become.

“May was a bad month for the U.S. economy,” said Allen Sinai, chief economist for Shearson Lehman Bros. “The orders report shows we have a continuing recession in the manufacturing sector and that is likely to continue until Labor Day.”

A string of government reports have pointed to declines in consumer spending, home sales, employment and industrial production during May, all indicating that the long-awaited rebound in economic growth has yet to materialize.

Tom Megan, an economist with Evans Economics, a Washington-based consulting firm, said the general weakness could mean that total economic growth, as measured by the gross national product, may have dropped as low as 1% in the just-completed April-June quarter. The government’s first estimate of second-quarter GNP growth will not be made until July 22.

“The industrial sector of the economy has been hard hit and there are no signs of a rebound,” Megan said, adding that an upturn won’t occur until the country’s giant trade deficit begins to improve.

The 0.1% fall in factory orders in May erased April’s 0.1% gain and followed a 2.8% decline in March.

Orders for durable goods, items expected to last three or more years, edged down 0.1% in May. This was a downward revision from an advance report last week that had said orders rose 0.4%.

Orders for non-durable goods were unchanged in May at $89.4 billion following a 1.2% rise the month before.

Demand for military equipment rose 36.6% to $8.9 billion, reversing a 37.8% drop in defense orders in April. The swing in this normally volatile category came from large orders for aircraft and ships in May.

Orders for non-defense capital goods inched up 0.4% in May to $26.3 billion following two consecutive declines.

This category is closely watched for information it can give about industry plans to expand production facilities and hire more workers. Business investment has been weak all year in part because the oil and gas industry has cut back sharply on drilling plans following the dramatic plunge in oil prices.