Washington, DC, June 24, 2004 — The nation's factories saw orders for big-ticket goods fall for the second straight month in May, typifying the often uneven road of recovery braved by manufacturers. New-home sales, meanwhile, shot up to a record high.
The Commerce Department reported Thursday that orders for "durables" costly manufactured products expected to last at least three years dropped by 1.6 percent in May from the previous month. The weakness was broadbased with demand slackening for cars, machinery, computers and other goods.
The decline, which came on the heels of a 2.6 percent decrease in April, was disappointing to economists. They were forecasting a 1.5 percent rebound in orders for May.
In a second report from the department, new-home sales surged by 14.8 percent last month to a seasonally adjusted annual rate of 1.37 million, an all-time monthly high. The showing, which was stronger than analysts expected, came after sales sagged by 7.9 percent in April.
An improved job climate is helping to offset a recent rise in mortgage rates, which still remain low by historical standards. Some economists predict new-home sales for all of 2004 will come in near record highs.
By region, sales in the Northeast skyrocketed by 53.2 percent in May from April to an annual rate of 121,000, the highest level since January 1989. In the South, sales rose to a record high rate of 663,000, representing a 20.3 percent increase from April. Sales climbed by 6.5 percent in the West to a pace of 379,000. But in the Midwest, sales were flat in May at a rate of 206,000.
In other economic news, the number of new people signing up for unemployment benefits last week rose by a seasonally adjusted 13,000 to 349,000, the Labor Department said. Part of the rise was attributed to laid-off workers filing claims when state employment offices reopened after being closed to observe the national day of mourning for former President Ronald Reagan.
On the manufacturing front, other recent reports, including two released by the Federal Reserve last week, suggested that factory activity was healthy in May. And, other barometers of the national economy's standing continue to suggest it is on solid ground.
Against that backdrop, economists widely expect the Federal Reserve will raise short-term interest rates for the first time in four year when it meets next week. The Fed's main lever to influence economic activity is currently at a 46-year low of 1 percent. Most economists are forecasting a one-quarter percentage point rise.
Fed Chairman Alan Greenspan, in an appearance on Capitol Hill last week, said that policy-makers still hold the view that increases in inflation will be modest, which would mean that policy-makers could gradually raise interest rates. But if their forecasts turn out to be wrong, Greenspan said, the Fed is prepared to take more aggressive action.
In Thursday's manufacturing report, orders for transportation products, including cars and airplanes, fell by 4.1 percent in May, following a 4.6 percent drop in April.
Excluding orders for transportation products, which can swing widely from month to month, orders dipped by 0.7 percent last month, after a 1.7 percent decline in April.
Orders for machinery declined by 0.6 percent in May, after a 4 percent drop in April. Orders for computers went down by 3.6 percent, compared with a 7.4 percent increase. For communications equipment, orders plunged by 12.5 percent, after registering a 21.1 percent jump in April.
Shipments of big-ticket goods a measure of current demand also dropped in May, declining by 0.7 percent. That followed a 0.8 percent decline in April.
