U.S. durable goods orders were 0.3% lower in May, the U.S. Commerce Dept. reported Wednesday. This was far below market expectations of a 1% rise.

BMO Nesbitt Burns says that, “Shipments were also on the soft side again last month, suggesting downside risk for Q2 GDP.”

Nesbitt reports that primary metals bookings were off 0.5%, and there was weakness in electrical equipment and appliances, and the transportation category. Strength came in tech goods, where orders rose 1.2%; and, fabricated metals, whose orders were up 2.5%.

“Judged by the standards of volatility seen in new orders over time, the report was not worrisome. However, it certainly showed no signs of life and probably should be listed on the side of reasons for a 50 bp rate cut today,” says Nesbitt.

RBC Financial says, “There is no doubt that this is a weak report. This being the first clean post-war read, markets had been expecting a more explicit improvement in the manufacturing sector, reflecting better business confidence and a very stimulative financing environment. However, despite today’s disappointment, the contraction in total new orders for May was significantly smaller than the 2.4% contraction in April, and with the rate cut expected by the Federal Reserve later today, a boost in activity is more likely than not in the months to come.”

In a separate release, U.S. new homes sold jumped 12.5% from April to May, putting sales at 1,157,000. This exceeds expected sales of 1,040,000. RBC says that this is the highest number of new homes sold on record. The median sales price also jumped to US$195,200 from US$185,500 in April, the highest price recorded so far this year, as the supply of new homes fell to its lowest level in over four years. Existing home sales also surprised on the upside, RBC says, but by a more modest 1.2%.

“This stronger-than expected housing data takes some of the edge off of today’s weak durables report, and provides more optimism for the economy going forward. The housing market in the U.S. refuses to slow and already record-low mortgage rates, with the risk of lower rates pending the Fed rate cut, mean it will likely be some time before any significant slowdown is seen,” concludes RBC.