US factory orders rebounded in May

Businesses requested more airplanes, autos, and oil drilling equipment in May, suggesting supply disruptions stemming from the Japan crisis are fading.

The Commerce Department says factory orders rose 0.8 percent in May. That followed a downwardly revised drop of 0.9 percent in April.

Much of the increase was driven by orders for aircraft, a volatile category, which jumped 36.5 percent. Auto and auto parts orders rose 2 percent. Excluding transportation, factory orders increased 0.2 percent in May, the same as April and down from a 2.9 percent gain in March.

The report also shows U.S. companies, flush with cash, are investing in computers and other equipment. A measure of business investment rose 1.6 percent, after falling 0.4 percent the previous month.

Orders for so-called nondurable goods, such as food, clothing, oil, and plastics, fell 0.2 percent in May. That's partly because oil prices fell in May.

The manufacturing sector has been one of the strongest areas of the economy since the recession ended two years ago. But factory output slowed this spring.

Economists have largely blamed the sluggish stretch on high gas prices and the impact of the March 11th earthquake in Japan, which led to a parts shortage that has hampered U.S. manufacturers.

Those factors appear to be easing. Gas prices have come down since peaking in early May. And the manufacturing sector expanded at a faster pace in June after slowing sharply in May, according to the Institute of Supply Management.

A recovery in the auto sector is one reason production is picking up. Japanese automakers with plants in the United States, such as Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., sharply cut production in the spring. But they are restoring output. Toyota executives say their North American factories will be back to 100 percent by September.

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Reports from the major automakers last week showed that sales rose 7 percent in June, compared to a year ago.

Busier auto plants would help boost the economy in the second half of this year. The economy grew at a 1.9 percent annual pace in the January-March quarter. Most economists expect a similarly weak pace of growth in the April-June quarter.

The economy grew at a 3.2 percent in the second half of this year, according to an Associated Press survey of 38 top economists.

Growth must be stronger to significantly lower the unemployment rate, which was 9.1 percent last month. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.

Employers added only 54,000 net new jobs in May, much slower than the average gain of 220,000 per month in the previous three months.

The government reports Friday on hiring data in June. Economists expect the economy added only 90,000 jobs and the unemployment rate was unchanged, according to survey by FactSet.