Durable-Goods Orders Jump 1.8%

--New orders for durable goods increased 1.8%, ex-trans 1.1% --Manufactures are still slashing inventory, 0.8% in May By JEFF BATER WASHINGTON -- Demand for expensive goods made a strong, surprising increase in May, the third climb in four months, while a gauge of capital spending surged by the most in nearly five years. Manufacturers' orders for durable goods increased by 1.8% last month to a seasonally adjusted $163.92 billion, the Commerce Department said Wednesday. Wall Street expected a big decrease. Economists surveyed by Dow Jones Newswires had projected orders in May would fall 0.8%. Orders for nondefense capital goods excluding aircraft rose by 4.8%, after decreasing 2.9% in April. It was the largest increase since 8.2% in September 2004. The orders are closely tracked as a gauge of capital spending by businesses. Despite the big May increase, the recession has left the capital orders down sharply year over year. Companies have had difficulty getting financing. The commercial equipment financing sector saw its volume plunge in May, a trade group report Tuesday said. The Equipment Leasing and Finance Association's monthly leasing and finance index fell by 41% compared to May 2008. The group blames tough credit conditions and a tightening of underwriting standards. Durables are goods designed to last at least three years, such as computers and washing machines. April overall durables also rose 1.8%, revised up from a previously estimated 1.7% increase. Durables year to date are down 26.8%, in unadjusted terms, from the same period in 2008. While manufacturing is suffering, it, like the entire economy, isn't as bad as it had been. Because companies are purging inventory and not demanding so much and because consumers saddled with debt and afraid of being laid off aren't spending so much, factories have lost a lot of steam. Industrial production fell 1.1% in May. But output was falling at about twice that rate at the end of 2008, when the recession apparently was at its deepest. Manufacturers are still cutting inventory, Wednesday's data showed. Manufacturers' inventories of durable goods decreased in May 0.8%. Unfilled manufacturers' orders, a sign of future demand, decreased 0.3%. That's the eighth drop in a row. Demand for transportation-related durables last month rose 3.6%, after shooting up 6.2% in April. Orders for commercial planes jumped 68.1%. Military aircraft orders fell 1.7%. Motor vehicles and parts decreased by 8.1%. Excluding the transportation sector, orders for all other durables climbed by 1.1% in May. Orders rose 7.7% for machinery, 0.2% for primary metals, and 2.2% for computers and electronics. Fabricated metals fell 2.5% and orders dropped 1.1% for electrical equipment. Demand ex-transportation had climbed 0.4% in April. May capital goods orders increased by 9.5%. Non-defense capital goods -- items meant to last 10 years or longer -- rose by 10.0%. Defense-related capital goods orders went up 7.4%. Orders for everything except defense goods increased by 1.4% in May, after going 0.6% higher in April. Durable-goods shipments of manufacturers fell 2.1% last month. Write to Jeff Bater at jeff.bater@dowjones.com