An unexpected jump in US durable goods orders last month backed hopes that the economy was healing and this message was reinforced by a pick-up in home mortgage applications last week.
New orders for long-lasting US manufactured goods rose by a much stronger-than-expected 1.8 per cent in May, Commerce Department data today showed.
Analysts polled by Reuters had forecast durable goods orders would decline 0.6 per cent last month. May's increase, the third gain in 4 months, followed a revised 1.8 per cent gain in April.
US stock index futures rose on the much stronger-than-expected durables report, the dollar pared gains and US government bond prices fell, although trading was also somewhat overshadowed by a Federal Reserve policy statement due later.
"The economy is bottoming here, and we're looking for the Fed to maybe change its statement slightly and maybe start to suggest a more neutral balance of risk. A nod, basically, to an exit strategy," said Kim Rupert at Action Economics LLC in San
Francisco.
The US central bank is also likely to stress that the economy remains fragile, although acknowledging signs that activity is picking up here and there.
Manufacturing, which accounts for about one-third of the economy, provides a good barometer for overall business health, and the May durable goods orders report showed solid gains.
New orders excluding transportation advanced 1.1 per cent last month, compared with a forecast for a 0.4 per cent decline, buoyed in part by a 7.7 per cent rise in new machinery orders. This was the largest percentage increase in that category since
March 2008, the Commerce Department said.
New orders excluding defense were 1.4 per cent higher, versus a Reuters' poll prediction for a 0.4 per cent drop.
More importantly, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, jumped 4.8 per cent in May, the largest gain since September 2004. May's sharp rise compared with forecasts for a 0.6 per cent drop and followed a revised 2.9 per cent fall in April.
"The numbers point to a stabilization, but certainly not a robust recovery," said Keith Hembre, chief economist at First American Funds in Minneapolis.