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Highlights
New factory orders for durables in May came in unexpectedly strong – even after discounting transportation. Durable goods orders increased 1.8 percent in May, following a rebound also of 1.8 percent drop in April. The boost in April initially had been estimated to be 1.7 percent. The May gain came in well above the market forecast for a 0.5 percent decline. Excluding the transportation component, new durables orders posted a 1.1 percent boost after rising 0.4 percent the month before.
The rebound in new orders was widespread but was led by machinery, up 7.7 percent, and transportation, up 3.6 percent. Also making gains were primary metals, and computers & electronics. Declines were seen in fabricated metals, communication equipment, electrical equipment, and "other."
Another sign of optimism was that capital goods orders rebounded. Orders for nondefense capital goods jumped 10.0 percent in May after a 2.9 percent dip the month before. Even excluding aircraft, nondefense capital goods orders rose 4.8 percent after a 2.9 percent drop in April
Year-on-year, overall new orders for durable goods improved slightly to down 23.3 percent in May from down 24.5 percent the previous month. Excluding transportation, new durables orders rose to down 22.4 percent from down 23.6 percent in April.
The May report on durables orders showed broad-based strength for new orders. While the gain in new orders will take a little time to impact production, the latest numbers add to the argument that the recession's bottom is near. This still does not change the likely fact that the recovery will be sluggish. Nonetheless, equities should like today's numbers. Treasury yields firmed on the news.
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Market Consensus Before Announcement
Durable goods orders rebounded a revised 1.7 percent in April, following a 2.2 percent drop in March. Excluding the transportation component, new durables orders gained a revised 0.4 percent after declining 2.8 percent the month before. The rebound in new orders was broad-based. Manufacturing surveys have been mixed on new orders. The ISM new orders index crossed into positive territory in May, rising to 51.1 from 47.2 the month before. New orders indexes for the Philly Fed and New York Fed have been improving but remained just below break even in May and June.
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