- The Washington Times - Wednesday, June 4, 2008

ASSOCIATED PRESS

Orders for manufactured goods posted a surprisingly strong increase in April as demand rose in a number of areas, including heavy machinery, iron and steel.

The Commerce Department reported Tuesday that orders were up 1.1 percent in April following a 1.5 percent increase in March. Those gains followed big declines in January and March that raised concerns about how much pain manufacturing industries would feel from the severe economic slowdown hitting housing and the financial sector.

Orders in the battered auto industry and commercial aircraft sector did fall sharply in April, but other areas showed strength, catching analysts by surprise. They had predicted overall orders would edge down slightly in April.

The better-than-expected reading on orders for manufactured goods followed news Monday that a key gauge of manufacturing rose to a reading of 49.6 in May, up from 48.6 in April.

While the Institute for Supply Management’s manufacturing index remained at levels indicating a continued contraction in manufacturing, the upward movement was seen as a possible sign that manufacturing is beginning to stabilize.

Manufacturing is being buffeted by a prolonged slump in housing - which has cut into demand for building supplies - and soaring energy prices, which have hurt auto sales. However, these adverse factors are being offset by continued strong demand for U.S. exports, which are more competitive in overseas markets because of the weaker dollar. Michelle Girard, an analyst at RBS Greenwich Capital, said one of the hopeful signs in the orders report is that inventories of unsold goods were unchanged in April, indicating that manufacturers are keeping their inventory backlogs under control. Smaller backlog inventories should reduce the need for production cutbacks that would make the current slowdown worse.

For April, demand for durable goods - items expected to last at least three years - fell by 0.6 percent, slightly larger than the 0.5 percent drop reported last week in a preliminary report. The weakness was led by a 24.4 percent drop in demand for commercial aircraft, a sector that is extremely volatile from month to month, and a 4.2 percent decline in motor vehicles, an industry that is being battered by soaring gasoline prices and the weak economy.

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