US factory orders rebound in May on strong aircraft demand

U.S. factory orders surged 8.2% in May, rebounding from a downwardly revised 3.9% decline in April, primarily driven by a 230.8% increase in commercial aircraft orders, including a significant deal between Qatar Airways and Boeing. Business spending on equipment also showed strength, with non-defense capital goods excluding aircraft rebounding 1.7%. Despite this strong rebound, the manufacturing sector remains constrained by President Trump's tariffs, contributing to ongoing volatility and anxiety among manufacturers.

Analysis

U.S. factory orders rebounded sharply in May, increasing 8.2% and meeting economist forecasts after a downwardly revised 3.9% decline in April. This surge was overwhelmingly driven by a 230.8% increase in commercial aircraft orders, notably including a significant order for Boeing from Qatar Airways. While this provides a strong headline figure, growth in other sectors was more moderate, with orders for motor vehicles rising 0.8% and machinery gaining 0.4%. A key indicator for business investment, orders for non-defense capital goods excluding aircraft, rebounded a solid 1.7%, signaling positive intentions for future spending. However, shipments of these core capital goods were revised down slightly to a 0.4% increase, suggesting a minor lag in current activity. This positive data is set against a backdrop of significant headwinds for the manufacturing sector, which constitutes 10.2% of the economy. An Institute for Supply Management survey highlights considerable anxiety among manufacturers over trade policy and tariffs, with some describing the business environment as "hellacious" and "too volatile" for long-term planning, posing a material risk to sustained growth.

Key Decisions for Investors

• Investors should look beyond the headline 8.2% factory order growth, as it is heavily skewed by a volatile aircraft component, and instead focus on the more modest growth in core capital goods orders as a truer measure of underlying business investment.
• The pronounced anxiety among manufacturers regarding tariffs is a critical risk factor that could suppress future capital expenditures and disrupt supply chains, potentially negating the positive momentum seen in May's data.
• For those with exposure to the aerospace sector, particularly Boeing (BA), the confirmed large order is a significant positive catalyst, but it is crucial to monitor for any new trade policy developments that could impact future international sales and the broader supply chain.