Demand for U.S. factory goods rose in May

Demand for U.S. factory goods rose in May, the latest sign that businesses are stepping up spending after a sluggish winter.

Total factory orders rose by $9.9 billion, or 2.1%, to a seasonally adjusted $485 billion in May from the prior month, the Commerce Department reported Tuesday. Orders have risen for three of the past four months.

The increase was driven by a rise in demand in the volatile aircraft segment, but demand for other items, such as computers, also rose, though only modestly. Excluding transportation, orders rose 0.6% in May.

The rise in total orders exceeded economists' expectations of a 2% increase. The report also showed that orders for durable goods--items designed to last longer than three years, such as cars and refrigerators--rose by 3.7%, a slightly stronger pace than initially reported. That followed a similar increase in April.

In one troubling sign, orders of consumer goods were essentially flat, rising just 0.5% after falling in April and March. But Tuesday's report also showed encouraging trends: Companies are restocking their shelves to keep up with slightly higher demand. And they are stepping up spending on equipment and software.

Inventories rose for the sixth consecutive month. Meantime, orders for nondefense capital goods excluding aircraft--a proxy for business investment--rose 1.5%, after rising in April and March.

Factories are having a choppy year, amid a soft economy in the U.S. and woes in Europe and Asia.

A separate report Monday showed that factory activity expanded slightly in June, after contracting in May. The report from the Institute for Supply Management showed growth in new orders, production and inventories. But it also showed that the employment index contracted for the first time since September 2009.