Playing defense: Military spending undercuts factory orders

A welder works on side assemblies for intermodal railcars at the Greenbrier Cos.' Gunderson railcar plant in Portland, Oregon.
Natalie Behring | Bloomberg | Getty Images

A fall in demand for military equipment spurred a drop in new orders for U.S. factory goods in May, but signs of a healthy appetite for investment in the private sector pointed to broader strength in the economy.

The Commerce Department said on Wednesday new orders for manufactured goods decreased 0.5 percent. That was a steeper drop than the 0.3 percent decline forecasted by analysts.

Stripping out military wares, new orders rose a modest 0.2 percent.

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U.S. factory output appeared to accelerate in the second quarter after lackluster activity during an unusually harsh winter. Data on Tuesday pointed to U.S. manufacturing activity rising at a steady clip in June, while automobile sales raced to their highest level in almost eight years.

May factory orders down 0.5%

Wednesday's data reinforced the view that investment demand could support a sustained pickup in economic growth this year.

The Commerce Department left unchanged its previous estimate for a proxy for business investment demand, with new orders for non-military capital goods other than aircraft rising 0.7 percent in May. Economists in a consensus survey expected factory orders to fall by 0.2 percent in May, against a 0.7 percent rise in the prior month.

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--By Reuters