Factory Orders Dip 0.6% as Aircraft Demand Sags

Orders to U.S. factories for manufactured goods fell 0.6% in May as a sharp drop in demand for aircraft offset strength in other areas, the government reported Thursday.

The Commerce Department said factory orders declined $1.36 billion to a seasonally adjusted $217.97 billion in May.

It was the largest one month decline since a 1.4% plunge last August.

Orders had been up sharply in the previous two months, rising by 1.5% in April and 1.6% in March. Analysts said the one-month breather would be good for the economy, giving factories more time to catch up with a backlog of unfilled orders.

Weakness in Transportation

“Orders had been growing at an unsustainably high rate,” said Cynthia Latta, an economist with Data Resources Inc. of Lexington, Mass. “This is a welcome sign because it eases the pressure a bit on an industrial sector that is operating at close to full capacity.”

The weakness in May was confined to the transportation sector, which fell 10.2% to $28.2 billion because of a big drop in orders for new aircraft. Without this weakness, orders would have climbed a healthy 1% during the month.

Analysts said orders were likely to jump sharply in June as aircraft demand rebounds reflecting large orders placed with Boeing Co.

The U.S. manufacturing sector is the star of the economy this year because of a boom in exports brought about by the weaker dollar.

Military Orders Down

The setback in May came in orders for durable goods, items expected to last three or more years. They declined 1.9%, also the biggest drop since August. A week ago in an advance report, the decline was put at a slightly larger 2.2%.

Orders for military equipment plunged 19.5% to $8.02 billion while orders in the category of non-defense capital investment fell 5.9% to $31.52 billion. Analysts said both of those declines were related to the drop in aircraft orders.