The U.S. recovery may be stronger than some suspected with news that U.S. durable goods orders increased 0.6% in May.

RBC Financial notes that durable goods orders increased 0.6% in May, up from a revised 0.4% in April. “This increase is right on top of the market consensus and should help dispel notions that the U.S. recovery may have stalled. The healthy 3.3% increase in orders for non-defence capital goods is particularly significant as it comes on top of a 1.4% gain in April.”

“In our opinion, this report and the stronger ISM survey results should be viewed as a package. Together, they strongly suggest the factory sector is on the mend,” says BMO Nesbitt Burns. “This report shows the recovery evolving toward a full-fledged expansion. There is a long way to go, however. With financial markets in turmoil, the Fed will not make a big deal of these limited gains. We still believe tightening before the election is not a good bet.”

RBC says that the missing element in the recovery has been business investment. “Today’s durable goods orders report highlights that this long-dormant sector of the U.S. economy appears set to turn around in the months ahead. With so much monetary stimulus present in the U.S. economy and a broadening of the recovery in the cards over the summer months, some Fed tightening can and should be expected in the fall.”