Durable Goods Orders Surge 3.3% in May

Durable goods orders jumped to record levels in May, but the rise was due mainly to aircraft sales. Several analysts said Wednesday that they do not expect a rise in interest rates next week.

Orders shot up 3.3% to a seasonally adjusted $171.8 billion, the highest since the government began keeping track in 1958, the Commerce Department reported Wednesday.

The advance is the largest since a 5.1% gain in August, and it was well above analysts’ expectations.

Financial markets largely ignored the report, however, with many traders focused instead on end-of-quarter portfolio shuffling.

“If you look underneath . . . most of [the durable goods increase] was from the volatile commercial aircraft category,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “The rest of it is fairly modest. It doesn’t indicate booming economic conditions lie ahead.”

Analysts are divided over whether the Federal Reserve Board’s policymaking Federal Open Market Committee will decide to raise short-term interest rates when it meets next week. Some say an increase is more likely to result when the panel meets in August.

The National Assn. of Manufacturers is urging policymakers to cut the federal funds rate by a quarter of a percentage point this year and another quarter of a point in 1997. It argues in a report that economic growth can be boosted from its current 2.2% annual rate to 2.8% without generating runaway inflation.

The Commerce Department reported that May’s increase in durable goods orders is the second in three months. The orders had slipped 1.8% in April after a 2.6% surge in March. The transportation sector posted a 12.2% gain, most of it because of aircraft sales, and erased the 12.1% loss of April. Transportation aside, orders were up 0.7%, the fifth increase in the last six months.

Orders for industrial machinery and equipment were up 2.5% in May, the fourth gain in five months.

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Durable Goods

Seasonally adjusted new orders, in billions of dollars:

May 1996: $171.8

Source: Commerce Department