US factory orders unexpectedly fall in May

WASHINGTON (Reuters) - New orders for U.S.-manufactured goods unexpectedly fell in May, while business spending on equipment appeared weaker than initially thought, government data showed on Wednesday.

Factory orders dropped 0.5% after rising 0.4% in April, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast factory orders would gain 0.2%.

Manufacturing, which accounts for 10.3% of the U.S. economy, is under pressure from higher interest rates and softening demand for goods. Government data last week showed manufacturing contracted at a 4.3% annualized rate in the first quarter, with most of the decline coming from long-lasting manufactured goods.

A survey from the Institute for Supply Management on Wednesday showed its manufacturing PMI declined further in June, with the ISM describing manufacturers as demonstrating "an unwillingness to invest in capital and inventory due to current monetary policy and other conditions."

The Federal Reserve has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July. The U.S. central bank has hiked its policy rate by 525 basis points since 2022 to quell high inflation.

Orders for machinery fell 0.5% in May. There were also decreases in orders for electrical equipment, appliances and components as well as primary metals. Orders for transportation equipment rose as did those for fabricated metal products.

Shipments of manufactured goods fell 0.7%, while inventories rose 0.2. Unfilled orders at factories climbed 0.2%.

The government also confirmed that orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment dropped 0.6% in May, as reported last month.

But shipments of these so-called core capital goods slipped 0.6% rather than by the previously reported 0.5%.

Nondefense capital goods orders decreased 1.0%, instead of 0.9%, as initially estimated. Shipments of these goods tumbled 1.6% instead of 1.5%, as reported last week.

These shipments go into the calculation of the business spending on equipment component in the gross domestic product report. Business spending on equipment rebounded moderately in the first quarter after contracting for two straight quarters.

(Reporting by Lucia Mutikani; Editing by Paul Simao)