July 5, 2005

Factory orders up 2.9 pct in May, in line

By Laura MacInnis

WASHINGTON (Reuters) - New orders at U.S. factories rose2.9 percent in May, exactly in line with analyst expectations,on an aircraft-led jump in durable goods, a government reportshowed on Tuesday.

The increase was the largest factory orders gain in morethan a year, and followed a slightly downwardly revised 0.7percent advance in April, the Commerce Department said.

Much of the factory orders strength came from durable goods-- big-ticket items meant to last three years or more -- whichrose 5.5 percent. Durables, which make up more than half offactory orders, surged in May after Boeing reported 200 newaircraft orders in the month.

Markets showed little reaction to the factory goods data,which was previewed in large part in the preliminary report ondurables issued last month.

Transportation equipment orders roared ahead 21.2 percentin May. Excluding the volatile transportation sector, totalfactory orders fell 0.1 percent.

"We had a lot of transportation gains," said StephenGallagher, chief U.S. economist at SG Corporate & InvestmentBanking in New York. "It seemed to be on the weak side once youstripped out the aircraft orders."

Gallagher saw the report contrasting with an Institute forSupply Management survey published on Friday, which showed theU.S. manufacturing sector growing quickly in June despitesoaring energy prices.

Non-defense capital goods excluding aircraft fell 2.5percent in May, the weakest reading for the key measure ofbusiness confidence since October 2004. The fall erased a 1.7percent April gain in the category.

Michael Englund, chief economist at Action Economics, saidstrong aircraft orders had plumped the factory orders reportenough to make it a difficult gauge.

"When you look at ex-aircraft, there is weakness after thebig surge in factory orders at the turn of the year into thefirst quarter," Englund said. "We view this as a zigzag in anotherwise fairly solid growth trend (for the economy)."

May orders for nondurable goods rose a paltry 0.1 percent.

Factory inventories were unchanged in May, the governmentsaid. The inventories-to-shipments ratio, a measure of howquickly stocks would run out at the current shipment pace, wasalso unchanged at 1.24 months' supply.