A gauge of U.S. business investment spending plans rose in May, a tentative sign that the manufacturing sector was stabilizing after hitting a soft patch in recent months. But the lingering effects of lower oil prices and a strong dollar will continue to constrain factory activity for a while, economists say. Other data on Tuesday showed new home sales increased to a more than seven-year high in May.
Manufacturing is lagging an overall rebound in the economy after output shrank at the start of the year. Despite the weakness in factory activity, the Federal Reserve is expected to raise interest rates this year. The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent last month. These so-called core capital goods orders slipped 0.3 percent in April.
“We are still far from calling the all-clear for the manufacturing sector’s recent soft patch. That said, today’s increase in core orders offers some modest encouragement,” said Sarah House, an economist at Wells Fargo Securities in Charlotte, North Carolina. Fed Governor Jerome Powell said on Tuesday the economy was likely to strengthen in the second half of the year and could be ready for a rate hike in September and a second increase in December.