U.S. factory orders slipped in May, but the decline was driven mainly by volatile aircraft bookings. Ex-transportation orders rose solidly, and core business equipment demand improved, suggesting manufacturing remains uneven but still expanding despite the weak headline.
U.S. factory orders fell in May, but the decline was driven largely by a sharp drop in commercial aircraft bookings rather than broad-based weakness. Ex-transportation orders, core capital goods, and shipments all pointed to resilient underlying business demand, suggesting manufacturing is still expanding at a moderate pace. For investors, the report is more consistent with uneven growth than with an imminent industrial slowdown, and it does little to alter the Fed’s near-term outlook.
U.S. factory orders looked weak at first glance in May, but the headline drop hid a sturdier story underneath. The clean read is this: aircraft volatility pulled the top-line number lower, while core manufacturing demand and business equipment spending kept moving in the right direction.
Key Takeaways
U.S. factory orders fell -1.3% in May, better than the -1.8% estimate, after April was revised up to +5.3%.
Factory orders excluding transportation rose +1.9%, beating the +0.4% forecast and topping April’s +1.7%
, which points to firmer underlying demand.
Transportation equipment orders dropped 14.0% to $113.5B, with commercial aircraft orders down 51.8% after a 167.4% surge in April.
Core business investment improved as non-defense capital goods orders excluding aircraft rebounded +1.4%, while core capital goods shipments edged up +0.1%.
The report supports a view of uneven but still expanding U.S. manufacturing, which matters for growth forecasts but does little on its own to change the Fed’s near-term stance.
Why the May Factory Orders Drop Was Mostly an Aircraft Story
The headline factory orders number fell 1.3% in May after April was revised up to 5.3%. That looks like a sharp reversal, but the main driver was transportation equipment, not a broad demand slump across U.S. manufacturing.
Transportation equipment orders fell 14.0% to $113.5B. More specifically, commercial aircraft orders dropped 51.8% in May after soaring 167.4% in April. Boeing received 27 aircraft orders in May versus 136 in April, which explains a large share of the swing.
That matters because aircraft orders are famously lumpy. One month they make the factory data look hot, and the next month they make it look broken. In this case, May looks more like payback after April’s surge than the start of a broad manufacturing slide.
Even the forecast comparison backs that up. Economists expected a 1.8% decline, so the actual 1.3% drop was still better than feared. That is not a booming headline, but it is a cleaner result than the top-line number first implies.
Factory Orders ex Transportation Show Stronger U.S. Manufacturing Demand
The more important number in this report was factory orders excluding transportation, which rose 1.9% in May. That beat the 0.4% estimate and improved from April’s 1.7% gain.
That ex-transportation reading gives a better view of underlying factory demand because it strips out the noisiest category. And here, the message was solid. Machinery orders rose 2.1%, while orders for computers and electronic products increased 0.2% and were up 13.0% from a year earlier.
Those gains fit the broader theme that AI-related capital spending is still supporting parts of the industrial economy. Reuters put it plainly: demand outside aircraft remained strong, partly driven by investment in artificial intelligence.
New orders for U.S. factory goods fell in May amid a decline in bookings for commercial aircraft, but demand elsewhere remained strong, partly driven by investment in artificial intelligence. - Reuters, Investing.com
That is an important distinction for investors and economists. A weak headline driven by one volatile category is one thing. Broad weakness across machinery, electronics, and fabricated metals would be a different problem entirely. May did not show that broader breakdown.
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Core Capital Goods Orders Point to Ongoing Business Investment
Another useful signal came from non-defense capital goods orders excluding aircraft, a common proxy for business equipment spending. That measure rebounded 1.4% in May after a prior estimate of 1.6% for April, while core capital goods shipments rose 0.1%.
This matters because business investment is one of the cleaner ways to judge whether companies still have confidence in demand. Firms usually do not keep ordering equipment if they think activity is about to fall off a cliff. The May data instead point to continued, if uneven, expansion.
There were other supportive details as well. Nondurable goods orders increased 2.2%, shipments rose 1.6%, and unfilled orders increased 0.6% in May. Unfilled orders have now risen in 22 of the last 23 months, which is not the pattern of a factory sector in retreat.
On a year-over-year basis, factory orders were up 5.1% in May. That does not erase monthly volatility, but it does reinforce the point that the sector still has forward motion.
What Factory Orders Mean for U.S. Growth and Fed Policy
For the broader economy, this factory orders report argues for moderate growth rather than recession. Manufacturing accounts for 9.4% of the U.S. economy, so it matters, but the composition matters more than the headline. In May, the composition was better than the top line.
Other macro data support that reading. The industrial production index rose to 102.6475 in May from 102.509 in April. Meanwhile, the unemployment rate held at 4.3% in May, and initial jobless claims fell to 215,000 for the week of June 20 from 227,000 a week earlier. Those are not signs of an economy rolling over.
Inflation also has eased from recent highs. The inflation rate stood at 2.23% on July 1, down from 2.48% on May 1. Still, the Fed’s June 17 policy statement kept rates at 3.50%-3.75% and stressed that inflation remains elevated.
So this report alone does not force a policy pivot. The negative headline is mildly dovish at the margin, but the stronger ex-transportation reading and firmer core capital goods data offset that. In plain English, the report is too mixed and too aircraft-distorted to move the Fed off its current path.
The broader manufacturing backdrop also helps. Reuters reported that S&P Global’s flash U.S. manufacturing PMI rose to 55.7 in late June, the highest since May 2022, while Reuters also noted the ISM manufacturing survey showed expansion for a sixth straight month in June. That makes the May factory orders decline look even less ominous.
May factory orders delivered a split-screen result: a soft headline and a firmer core. Strip out aircraft noise, and the report shows a U.S. manufacturing sector that is still expanding, still investing, and still getting support from AI-linked demand.
That does not make manufacturing strong across the board. It does, however, keep the bigger story intact: business spending is holding up, recession signals remain limited, and the Fed still needs more than one mixed factory report to change course.
▌Common Questions
Frequently asked questions
+Why did U.S. factory orders fall in May?
The headline decline was mainly caused by a sharp drop in transportation equipment orders, especially commercial aircraft. That category is highly volatile, so the monthly move does not necessarily signal broad weakness in manufacturing.
+What do factory orders excluding transportation show?
Factory orders excluding transportation rose 1.9% in May, which was stronger than expected and above April’s pace. This suggests underlying manufacturing demand remained solid even as aircraft orders pulled the headline number lower.
+What do core capital goods orders say about business investment?
Non-defense capital goods orders excluding aircraft rose 1.4% in May, a key sign that companies are still spending on equipment. That points to ongoing business investment rather than a broad pullback in demand.
+Is the factory orders report bad for the U.S. economy?
Not really, because the weakness was concentrated in one volatile category rather than spread across the factory sector. The broader data still point to moderate manufacturing growth and continued expansion in the U.S. economy.
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