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U.S. Durable Goods Orders Drop 1.3% Amid Continued Slump In Aircraft Demand

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New orders for U.S. manufactured durable goods unexpectedly showed another steep drop in the month of May, according to a report released by the Commerce Department on Wednesday.

The Commerce Department said durable goods orders slumped by 1.3 percent in May after tumbling by a revised 2.8 percent in April.

The continued decrease surprised economists, who had expected durable goods orders to rise by 0.2 percent compared to the 2.1 percent drop originally reported for the previous month.

Transportation equipment led the way lower once again, with orders in the volatile category plummeting by 4.6 in May after plunging by 7.6 percent in April. Orders for non-defense aircraft and parts showed a continued nosedive.

Excluding the continued collapse in orders for transportation equipment, durable goods orders rose by 0.3 percent in May after edging down by 0.1 percent in April. Economists had expected a 0.1 percent uptick.

A jump in orders for communications equipment contributed to the modest increase in ex-transportation orders along with a rebound in orders for primary metals.

The report also said orders for non-defense capital goods excluding aircraft, an indicator of business spending, increased by 0.4 percent in May after tumbling by 1.0 percent in April.

Shipments in the same category, which is the source data for equipment investment in GDP, climbed by 0.7 percent in May after rising by 0.4 percent in April.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the continued increase suggests "equipment investment growth could be closer to 5% annualized - whereas we previously had that pegged at zero."

"The 1.3%m/m decline in durable goods was largely a reflection of Boeing's problems following the grounding of its 737 Max, with underlying orders and shipments suggesting that business equipment investment wasn't quite as soft as we feared in the second quarter," Ashworth said.

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