Demand for U.S. Capital Goods Rebounds as Spending Holds Up
Orders for Durable Goods in U.S. Probably Declined
Jason Janik/Bloomberg
Manufacturing, which led the U.S. out of the worst recession since the 1930s, may cool as disappointing demand makes companies like Texas Instruments Inc. less optimistic on the short-term outlook for sales and profits.
Manufacturing, which led the U.S. out of the worst recession since the 1930s, may cool as disappointing demand makes companies like Texas Instruments Inc. less optimistic on the short-term outlook for sales and profits. Photographer: Jason Janik/Bloomberg
Sept. 24 (Bloomberg) -- Orders for U.S. capital equipment rebounded in August, signaling a slowdown in business investment may be less severe than some economists projected. Bookings for goods like computers and communications gear climbed 4.1 percent after a 5.3 percent decline in July that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Bloomberg's Betty Liu and Michael McKee report. (Source: Bloomberg)
Orders for U.S. capital equipment rebounded in August, signaling business investment is holding up better than some economists projected.
Bookings for goods like computers and communications gear climbed 4.1 percent after a 5.3 percent decline in July that was smaller than previously estimated, according to figures from the Commerce Department issued today in Washington. Another report showed sales of new homes last month held at the second-lowest level on record, indicating housing remains depressed.
Stocks rallied, sending benchmark indexes to the highest levels since May, as economists at banks like Morgan Stanley in New York raised forecasts for business spending on new equipment this quarter. The figures may ease concern at the Federal Reserve after policy makers this week cited the investment slowdown in announcing they were willing to take more steps to spur growth.
“This is reassuring news,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Capital goods spending still seems to be on a very solid underlying trend.”
The Standard & Poor’s 500 Index rose 2.1 percent to 1,148.67 at the 4 p.m. close in New York. The S&P Supercomposite Machinery Index, which includes companies like Caterpillar Inc. and Deere & Co., climbed 3.3 percent. Treasury securities fell as the report discouraged speculation the Fed will boost purchases of U.S. debt.
Plane Orders
Total orders for durable goods dropped 1.3 percent, depressed by a 10 percent decrease in transportation gear like airplanes and automobiles that is often volatile. Boeing Co., the world’s second-biggest commercial-plane maker, said it received 10 orders last month, compared with 130 in July. Industry data may not correlate with the government statistics on a month-to-month basis.
Economists projected total durable-goods orders would fall 1 percent, according to the median of 72 forecasts in a Bloomberg survey. Estimates ranged from a drop of 3.2 percent to a 2 percent increase.
Bookings excluding transportation equipment rose 2 percent, twice as much as the median forecast of economists surveyed.
John Chambers, chief executive officer of Cisco Systems Inc., the largest maker of networking equipment, said in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan” that economic conditions appeared “a little bit bumpy.”
Back to ‘Normal’
“What we’ve always said is we saw the market returning to more normal growth rates,” Chambers said. Most chief executives Cisco talks to are projecting U.S. growth of 2 percent or less, “and that means they’ll also spend appropriately and also hire appropriately.”
Sales of new homes were unchanged at a 288,000 annual rate last month, matching July as the second-lowest in data going back to 1963, another report from the Commerce Department showed. Purchases were forecast to increase to a 295,000 pace from a previously estimated 276,000, according to the median estimate in a Bloomberg News survey of economists.
“There is no upside momentum in housing, period,” said Eric Green, chief market economist at TD Securities Inc. in New York, who correctly forecast the level of sales. “Unemployment is so high, consumer confidence is so low, household wealth is eroded and the psychology remains negative.”
New-home sales are counted at the time a contract is signed, making them a leading indicator of demand.
Spending Profits
The economic recovery that began in June 2009 may continue to depend on gains in manufacturing as companies use a surge in profits to replace outdated equipment.
FedEx Corp., the second-largest U.S. package-shipping company, plans to boost capital spending to $3.5 billion this fiscal year from $2.8 billion the prior year, Chief Financial Officer Alan B. Graf said in a Sept. 16 teleconference with investors and analysts. The Memphis, Tennessee-based company is buying more fuel-efficient aircraft to lower costs and “support projected long-term volume growth,” he said.
The durable-goods report prompted economists at Morgan Stanley to raise their estimate for third-quarter growth in business investment in equipment and software to 11.5 percent from 5 percent and to boost their forecast for economic growth by a half percentage point. Business spending surged at a 25 percent rate last quarter, the biggest gain since 1983.
Three-Month Gain
Last month’s 4.1 percent increase in orders for non-defense capital goods excluding aircraft, a proxy for future business investment, brought the gain over the past three months to a 15 percent annual pace compared with 24 percent in the three months ended in July.
Shipments of those items, used in calculating gross domestic product, increased 1.6 percent after rising 0.1 percent in July, today’s report showed. The July figure was originally reported as a drop.
“The pace of recovery in output and employment has slowed in recent months,” the Fed said Sept. 21 after its latest policy meeting. “Business spending on equipment and software is rising, though less rapidly than earlier in the year.”
Other measures of manufacturing have shown a slowdown. Factories in the New York region expanded in September at the slowest pace this year, while those in the Philadelphia area contracted for a second month, according to regional Fed surveys. Manufacturing output nationwide grew 0.2 percent in August following a 0.7 percent July gain, the Fed said last week.
President Barack Obama this month proposed a package of $180 billion in business tax breaks and infrastructure spending to boost spending and job growth.
To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net;
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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