Orders for durable goods climbed more than forecast in May after slumping the prior month, easing concern manufacturing will share in an extended U.S. growth slowdown. Bookings for equipment meant to last at least three years rose 1.9 percent after a 2.7 percent decline the prior month that was less than originally reported, the Commerce Department said today in Washington. Demand for non-military capital equipment also beat expectations after revised April readings showed a smaller decline than previously reported. Factories will probably rebound as parts shortages stemming from the disaster in Japan wane, fuel costs ebb and a drop in the value of the dollar combined with growing economies overseas push exports up. Last month’s improvement supports the view of Federal Reserve officials, who this week said the slackening in the expansion may be due to temporary restraints. “Manufacturing is still in expansion mode because exports are still promising and businesses are investing in capital and equipment formation,” Chris Christopher, senior principal economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Manufacturing has been the silver lining in a very anemic recovery.” The median forecast of 69 economists surveyed by Bloomberg News projected a 1.5 percent increase in orders after a previously reported 3.6 percent drop in April. Estimates ranged from a decline of 1.9 percent to a gain of 5.5 percent. First-Quarter Growth The U.S. economy grew at a 1.9 percent annual pace in the first quarter, marking the start of what Federal Reserve policy makers project is a temporary slowdown in growth, another report from the Commerce Department today showed. The revised rise in gross domestic product matched the median forecast of economists surveyed by Bloomberg News and followed a 3.1 percent gain in the prior quarter. The government last month estimated first-quarter growth at 1.8 percent. Stock-index futures rose after the reports. The contract on the Standard and Poor’s 500 Index maturing in September climbed 0.2 percent to 1,279.6 at 8:34 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.93 percent from 2.91 percent late yesterday. Orders for durable goods excluding transportation equipment, like commercial aircraft, increased 0.6 percent after a 0.4 percent decline, the Commerce Department said. Extending Pattern Today’s figures extended a recurring pattern of declines in capital equipment orders at the start of a quarter that are then reversed in the following two months. Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items like computers, engines and communications gear, climbed 1.6 percent after falling 0.8 percent the prior month. The April decline was previously reported at 2.3 percent. Last month’s gain was broad-based, with orders for machinery, computers, electrical equipment and communications gear all rising. Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, increased 1.4 percent after decreasing 1.5 percent. Manufacturing, which has been benefiting from a pickup in exports to countries like China and Brazil, began to cool in the aftermath of Japan’s earthquake in March and as raw-material costs climbed. Factory production dropped 0.5 percent in April, restrained by shortages of auto parts, according to Fed figures. Factory Rebound Reports this month indicate a recovery may already be at hand. Output climbed 0.4 percent last month on rising demand for machinery and computers, Fed data showed June 15. Autos and parts production fell 1.5 percent, representing an improvement from the 6.5 percent plunge in April as supply restraints eased. “The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan,” central bankers said June 22 in announcing they will maintain record stimulus. “The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben S. Bernanke said at a press conference after the Federal Open Market Committee met. Manufacturing Shares Manufacturing shares have reflected the slowdown. The Standard & Poor’s Supercomposite Machinery Index, made up of 54 companies including Caterpillar Inc., Deere & Co. and Cummins Inc., dropped 6 percent in May, compared with a 1.4 percent decrease for the broader S&P 500 Index. FedEx Corp. (FDX), operator of the world’s biggest cargo airline, is among companies projecting business will improve. The Memphis, Tennessee-based carrier this week forecast full-year earnings that may top analysts’ estimates as demand climbs. “We believe the near-term softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers,” Frederick Smith, chairman and chief executive officer of FedEx, said on a June 22 conference call. “We believe the industrial sector will lead growth in the United States and overseas in the next two years, supporting shipping demand.” To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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