Factories orders rise 2.9%

Tuesday, July 5, 2005 | 9:16 a.m.

WASHINGTON -- U.S. factories saw orders rise by 2.9 percent in May, the best showing in 14 months, with most of the strength reflecting robust demand for airplanes and parts.

The sizable advance came after 0.7 percent increases registered in both March and April, the Commerce Department reported today.

While the pickup in May was welcome, the latest snapshot of manufacturing activity showed that improvements across various sectors were uneven.

New bookings for machinery and computers fell in May. Orders for cars and primary metals, including steel, were flat. But demand for airplanes, household appliances and furniture all posted gains. Orders for food products and clothing also went up.

The overall performance in May was close to the 3 percent increase in orders to factories that economists were forecasting before the report was released.

Excluding orders for airplanes and other transportation equipment, though, factory orders dipped by 0.1 percent in May. This category saw orders decline by 0.4 percent in April.

Manufacturing, hardest hit by the 2001 recession, has sometimes had a bumpy road to recovery. Still, factory activity is considered to be in good shape despite the toll of high energy prices and increases in the costs of some raw materials.

To keep inflation in check, the Federal Reserve last week boosted a key short-term interest rate by one-quarter percentage point to 3.25 percent. It marked the ninth increase of that size since the Fed began to tighten credit in June 2004.

With the economy doing well despite elevated energy prices, the Fed didn't signal any break in its yearlong rate-raising campaign. Instead, Fed policy-makers suggested rates would be moving higher through much of this year.

The 2.9 percent increase in overall orders to U.S. factories in May was the largest since March 2004, when new bookings rose by 5 percent.

In May, orders for all durable goods -- costly manufactured items expected to last at least three years -- rose by 5.5 percent, up from 1.5 percent in April.

Meanwhile, demand for nondurable goods, including food and clothing, edged up 0.1 percent in May. That followed a decline of 0.1 percent in April.