US factory orders likely to slip in May on drop in military demand, breaking 3 months of gains

The Commerce Department reports on U.S. factory orders in May at 10 a.m. Eastern time Wednesday.

SNAPPING A WINNING STREAK: Economists expect orders to slide 0.3 percent in May, ending three months of gains, according to a survey by FactSet.

DROP IN MILITARY ORDERS: The expected drop in factory orders would follow a Commerce Department report last week that durable goods orders fell 1 percent in May, pulled down by tumbling demand for military equipment. Excluding volatile defense-related goods, durable goods orders rose. And in a good sign for future business investment, orders for core capital goods rose 0.7 percent.

Increased spending by businesses would give the economy some momentum after it got off to a bad start this year: The U.S. economy shrank at a 2.9 percent annual rate from January through March. But economists blame the first-quarter drop on an unusually bitter winter and a sharp reduction in businesses' inventories. They expect economic growth to rebound to an annual pace of 3 percent or more the rest of the year.

U.S. factories have been busy. The Institute for Supply Management reported Tuesday that U.S. manufacturing expanded in June for the 13th straight month, though the pace of growth slowed from May. The trade group of purchasing managers said its manufacturing index dipped to 55.3 in June from 55.4 in May. Any reading higher than 50 signals that manufacturing is growing.

But growth in production and exports slowed. A measure of employment shows that factories added jobs for the 12th straight month; the pace of hiring last month was the same as in May.

Fifteen of 18 manufacturing industries grew in June, led by furniture makers and mineral producers. Textile, chemical, and plastics and rubber manufacturing contracted in June.

Manufacturers added 10,000 jobs in May as overall U.S. employers created more than 200,000 jobs for the fourth straight month, longest such stretch since 1999. The government's employment report for June comes out Thursday.