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The numbers: Orders at U.S. factories for long-lasting goods such as new cars or heavy machinery rose 0.7% in May, a stronger than expected reading that shows manufacturers still had plenty of demand for their products even amid signs the economy was slowing.
Economists polled by the Wall Street Journal had forecast a 0.2% advance. It was the seventh gain in the last eight months.
Another measure in the report seen as a bellwether for business investment rose 0.5%, the government said. These so-called core orders strip out the up-and-down transportation sector as well as government spending on military equipment.
They are viewed by investors as a signal of future business prospects.
Big picture: Factories are still pumping out lot of goods despite ongoing supply and labor shortages, but talk of recession is making them reconsider their future plans. An early survey of manufacturing executives in June points to a sharp slowdown.
How come? The Federal Reserve is raising interest rates rapidly to try to squelch the highest inflation in 40 years. Its strategy is sure to slow the economy and reduce demand.
The Fed hopes to slow the economy just enough to bring supply and demand back into balance and drive down inflation. Demand has outraced supply since the economy reopened last year and it’s been a big contributor to inflation.
The risk is that the central bank could induce a second recession in three years.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open higher in Monday trades and extend a recent rally.
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