Durable Goods Orders Drop In May

Factory orders for durable goods fell 1.1 percent last month, but that was largely the result of a drop in demand for commercial aircraft.

WASHINGTON (AP) -- Businesses spent more on big-ticket goods in May, as manufacturing continued to be a source of strength in the economic recovery.

Overall, factory orders for durable goods fell 1.1 percent last month, the Commerce Department said Thursday. But that was largely the result of a drop in demand for commercial aircraft.

Excluding the volatile transportation sector, orders rose 0.9 percent after falling in April. Contributing to the strength was a 2.1 percent increase in business spending.

In a separate report, the Labor Department said the number of people filing first-time claims for jobless benefits fell last week by 19,000, the largest drop in two months. Still, initial claims are at about the same level they were at the beginning of the year. The stubbornly high level of requests for jobless aid is a sign hiring remains weak even as the economy recovers.

One area that could see job growth is manufacturing, where companies are investing in costly machinery as the recovery gains strength. The increase was driven by a 5.6 percent uptick in orders for machinery.

As manufacturers grow confident, they are investing in equipment and repairs that they put off during the recession, said William Dunkelberg, an economics professor at Temple University's School of Business and Management.

"Things are wearing out, and we haven't done a lot of spending for a long time," he said. "We will be replacing more and more machinery and repairing facilities, because the corporate sector does have a lot of cash and they're sitting there looking for things to do with that money."

A durable good is a product expected to last at least three years.

Analysts say orders for Boeing Co. fell in May after surging in April. That decline offset gains for machinery, raw metals and computers.

Communications equipment orders fell 9.4 percent. It was that sector's largest decline since December 2008, at the peak of the financial crisis.

Despite the strong results, the sector faces looming threats.

The European fiscal crisis has boosted the dollar's strength against the euro. That makes American products more expensive for international buyers, driving down export demand.

At the same time, Europe's financial instability has led consumers and businesses overseas to spend less. Exports are crucial for manufacturers of planes, cars and heavy machinery.

In the U.S., the sluggish housing market and stubbornly high unemployment also have economists on edge.