Demand for US capital goods dips in May; Q2 manufacturing may be sluggish

The weakness comes despite a continuing strong job market, unemployment falling to a 16-year low

New orders for key US-made capital goods unexpectedly fell in May and shipments also declined, suggesting a loss of momentum in the manufacturing sector halfway through the second quarter.

The Commerce Department said on Monday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.2 per cent, the largest decline since December.

These so-called core capital goods orders were revised up to show an increase of 0.2 per cent for April. They were previously reported to have risen 0.1 per cent.

Shipments of core capital goods fell 0.2 per cent last month after rising 0.1 per cent in April. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Economists polled by Reuters had forecast core capital goods orders rising 0.3 per cent in May.

US Treasury yields fell after the publication of the data and US stock index futures slightly pared gains. The US dollar was trading lower against a basket of currencies.

The report added to growing worries that an acceleration in economic growth in the second quarter may not be as fast as expected. Recent data on retail sales, manufacturing production and inflation have signalled softness and housing data has been mixed.

The weakness comes despite a continuing strong job market. The unemployment rate fell to a 16-year low of 4.3 per cent in May.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or longer, fell 1.1 per cent in May, the biggest decline since November. They dropped 0.9 per cent in April.

Last month, orders for machinery rose 0.6 per cent while shipments decreased 0.3 per cent. Civilian aircraft orders declined 11.7 per cent and bookings for defence aircraft and parts plummeted 30.8 percent. Orders for motor vehicles and parts increased 1.2 per cent.