Orders for U.S. durable goods drop 1 percent in May

WASHINGTON - Orders for U.S. durable goods tumbled 1 percent in May as demand for military equipment fell sharply. But excluding defense-related goods, orders actually rose, and orders in a key category that signals business investment also increased.

The gains outside of military goods suggest business spending is picking up, which could give the economy a much-needed boost.

The Commerce Department said Wednesday that orders, excluding defense, rose 0.6 percent in May, after falling 0.8 percent in April. Orders for core capital goods, which reflect business investment, increased 0.7 percent, after a 1.1 percent drop.

Factories reported higher demand for steel and other metals, computers, and autos. Orders for defense equipment surged in April, so the sharp fall in May isn't a total surprise. Durable goods are items expected to last at least three years.

The figures come as a separate report showed that the U.S. economy contracted sharply in the first three months of the year, largely because of bad weather. The economy shrank 2.9 percent at an annual rate in the first quarter, the worst showing since the first quarter of 2009, in the depths of the Great Recession.

But most economists expect growth has resumed in the current quarter, partly because of rising manufacturing output. Most analysts expect the economy will expand by 3.5 percent in the April-June quarter.

Factory production rose at a steady pace last month, according to the Federal Reserve, as manufacturers cranked out more cars, machinery, furniture, computers and appliances. More output of those goods points to rising demand from consumers and businesses.

And auto sales reached a nine-year high in May as Americans ramped up purchases of SUVs and pickup trucks.

A survey by the Institute for Supply Management, a trade group of purchasing managers, found that manufacturing expanded faster in May than in April. A measure of new orders also rose, pointing to further growth in output in the coming months.

Manufacturers are hiring more to keep up with demand. Factories added 10,000 positions in May, and the average workweek for manufacturing employees grew.