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Factory orders in the U.S. increased more than forecast in June, propelled by gains in petroleum and chemicals that reflected soaring prices.

The 1.7 percent gain in bookings, the biggest this year, followed a revised 0.9 percent increase in May that was larger than previously estimated, the Commerce Department said today in Washington.

The jump in raw-material costs is hurting profits, causing businesses to limit spending on new equipment. Demand from overseas is helping factories withstand the slowdowns in corporate and consumer spending, giving the economy a lift as the effects of the tax rebates wane.

“These numbers are somewhat inflated by prices, maybe even outside of petroleum,'' said David Sloan, senior economist at 4Cast Inc. in New York. “The underlying picture is fairly flat'' for manufacturing.

Economists forecast factory orders for June would rise 0.7 percent after a previously reported 0.6 percent gain for May, according to the median of 56 forecasts in a Bloomberg News survey. Estimates ranged from a 0.2 percent drop to an increase of 2 percent.

The biggest increase in prices in almost three years eroded consumers' buying power in June, diminishing the boost from the government's tax rebates, a separate report from Commerce also showed. Consumer inflation climbed 0.8 percent, the most since September 2005, the Commerce Department said today in Washington. Spending increased 0.6 percent after a 0.8 percent gain in May.

Ex-Transportation

Excluding demand for transportation equipment, which tends to be volatile, factory orders increased 2.3 percent, the most since April.

Bookings for all durable goods climbed 0.8 percent in June. This figure makes up just over half of the total factory orders. Non-durable goods orders, including those for food, petroleum and chemicals, jumped 2.5 percent after a 1.7 percent gain in May. Demand at petroleum refineries increased 5.6 percent and rose 11 percent at makers of agricultural chemicals such as pesticides and fertilizers.

Factory inventories increased 1 percent, also led by petroleum products, and manufacturers had enough goods on hand to last 1.22 months at the current sales pace, down from 1.23 months in May.

A report last week showed manufacturing stagnated in July. The Institute for Supply Management's factory index fell to 50 from 50.2 in June. Fifty is the dividing line between expansion and contraction. The group's factory orders index slumped to the lowest level in almost seven years and the prices paid measure remained near a 30-year high quick payday loans 24 hour payday advances.

`Significant Recession'

“Were it not for exports at this point, I think I would take the position that manufacturing overall would be in a significant recession,'' Norbert Ore, chairman of the ISM survey, said in a conference call. “But the export market has held up quite well for us.''

The trade deficit narrowed to a $395.2 billion annual pace in the second quarter, the smallest gap in seven years, the Commerce Department said on July 31. Without trade, the economy would have contracted at a 0.5 percent pace from April through June, instead of expanding at a 1.9 percent rate.

Bookings for capital goods excluding defense and aircraft, a proxy for future business investment, rose 1.2 percent in June, today's report showed. Shipments of such goods, which the government uses to calculate gross domestic product, increased 0.7 percent.

Slowing Sales

Akamai Technologies Inc., the largest supplier of software and services to speed up the delivery of Web pages, cut its profit forecast July 30 because of slowing sales. Chief Executive Officer Paul Sagan said the economy may be limiting clients' investments.

Private non-residential investment rose at a 2.3 percent annual rate in the second quarter, the slowest pace since the last three months of 2006, the government said last week. Spending on equipment and software fell at a 3.4 percent pace.

The Federal Reserve said on July 23 that “many'' of its 12 districts had declining manufacturing activity in June and July “although demand for exports remained generally high.'' The Fed also said the economy “slowed somewhat'' and that all of its bank districts reported “elevated or increasing'' price pressures.

The Fed is scheduled to next vote on the direction of its benchmark overnight lending rate between banks at the conclusion of its Federal Open Market Committee meeting Aug. 5. Traders are projecting the central bank will keep the rate at 2 percent.

Reports suggest automobile manufacturing will continue to suffer. U.S. auto sales fell to a seasonally adjusted 15-year low of 12.5 million at an annual rate in July, according to Bloomberg data.

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