Durable Goods Orders Dip 2.4% During May : Economy: It may be a bad sign for manufacturing--a sector that some think could lead the recovery.

WASHINGTON —  The Commerce Department reported Wednesday that new orders for durable manufactured goods fell last month, emphasizing the long climb still ahead for the fledgling economic recovery.

Orders for goods made to last three or more years--items from toasters to turbines--fell 2.4% in May to a seasonally adjusted $119.5 billion, the department said. It was the sharpest drop in five months.

White House spokesman Marlin Fitzwater noted that “the May decline follows a healthy rebound during the previous four months” and said, “This report is consistent with continuing recovery in the manufacturing sector and the overall economy.”

Private analysts, who had been anticipating an increase of around half a percentage point, warned against reading too much into one month’s setback. Still, they took the report as a worrisome sign for manufacturing, which they are counting on to lead the recovery.

“The economy is advancing instead of shrinking but, compared to other recoveries, it’s a pretty feeble event,” said economist Bruce Steinberg.

The White House is simultaneously trying to reassure voters that the economy is improving while pressuring the Federal Reserve to stimulate business investment and consumer spending by reducing interest rates.

In an interview published Wednesday in the New York Times, President Bush said, “I’d like to see another lowering of interest rates.”

The Fed cut rates sharply through early this year but has not acted since April. Since then, central bank policy-makers have indicated that they believe another cut will provide little economic benefit and, in the long run, push up inflation.

Bush, however, said, “I can understand people worrying about inflation. But I don’t think that’s a big problem right now.”

In anticipation of lower rates, the bond market rallied after the report’s release. As rates drop, bond prices rise.

Steinberg said the Federal Reserve generally resists appearing as if it is bending to political pressure but may be inclined to cut rates again after its policy-making Federal Open Market Committee meets next week.

In a bad sign for future employment, the backlog of unfilled durable goods orders in May fell 0.6% to $470.3 billion. It was the ninth consecutive monthly drop and an indication that factories’ existing work forces were having little trouble keeping up with new orders.

Durable Goods Orders

New orders in billions of dollars, seasonally adjusted

May, ‘92: 119.5

April, ‘92: 122.5

May, ‘91: 118.4

Source: Commerce Department