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June 27, 2022, 3:34 p.m. EDT

Durable-goods orders climb again and signal the economy is still expanding

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By Jeffry Bartash

The numbers:  Orders at U.S. factories for long-lasting goods such as new cars or heavy machinery rose 0.7% in May, a stronger than expected reading that showed manufacturers still had plenty of demand for their products even amid signs the economy was slowing.

Economists polled by the Wall Street Journal had forecast a 0.2% advance. It was the seventh gain in the last eight months.

Another measure in the report seen as a bellwether for business investment rose 0.5%, the government said . These so-called core orders strip out the up-and-down transportation sector as well as government spending on military equipment.

They are viewed by investors as a signal of future business prospects.

Big picture: Factories are still pumping out lot of goods despite ongoing supply and labor shortages, but talk of recession is making them reconsider their future plans. An early survey of manufacturing executives in June points to a sharp slowdown .

How come? The Federal Reserve is raising interest rates rapidly to try to squelch the highest inflation in 40 years. Its strategy is sure to slow the economy and reduce demand.

The Fed hopes to slow the economy just enough to bring supply and demand back into balance and drive down inflation. Demand has outraced supply since the economy fully reopened and it’s been a big contributor to inflation.

The risk is that the central bank could induce a second recession in three years. A new survey by JPMorgan shows that only 19% of business leaders are optimistic about the economy in the next year, the lowest reading since the survey began 12 years ago.

K ey details : Orders for new cars and trucks rose 0.5% in May and offset a 1.1% decline in commercial airplanes.

New orders also rose 0.7% outside the transportation segment, a large and volatile category that often exaggerates the ups and downs in industrial production. The also rose for machinery, electronics and communications gear.

Orders were flat for fabricated-metal parts and they declined for computers

The increase in so-called core orders, a measure of business investment, was another positive.

Business investment has increased a healthy 9.8% in the past year, though the rate of growth has steadily slowed since a hitting a pandemic peak of 22% in April 2021.

Durable goods are products meant to last at least three years.

Looking ahead: “From everything I have seen, business investment remains strong, though it certainly would not be surprising to see some moderation going forward as borrowing rates and uncertainty regarding the economic outlook rise,” said chief economist Stephen Stanley of Amherst Pierpont Securities.

Market reaction:  The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.27% and S&P 500 /zigman2/quotes/210599714/realtime SPX +1.73% rose slightly in Monday trades, extending a recent rally.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
33,761.05
+424.38 +1.27%
Volume: 320.97M
Aug. 12, 2022 6:27p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,280.15
+72.88 +1.73%
Volume: 2.22B
Aug. 12, 2022 6:27p
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