U.S. Economy: Business Investment Climbs, Housing Stabilizes

Companies ordered more equipment in December for a second month, showing business investment will continue to bolster the U.S. economic recovery into 2011.

Bookings for capital goods like machinery and communications gear excluding aircraft climbed 1.4 percent after a 3.1 percent gain in November, the Commerce Department reported today in Washington. Other figures showed contracts to buy previously owned homes climbed, and more Americans than projected filed claims for jobless benefits.

Caterpillar Inc. and Qualcomm Inc. are among companies this week that said they are benefitting from increasing demand as the global recovery strengthens. Even so, the Federal Reserve yesterday said the economy wasn’t growing fast enough to spur bigger job gains and pledged to stick to a plan to buy $600 billion in assets by June.

“The recovery is proceeding and doing OK but not so strong as to lead the Fed to back away from its easing monetary policy,” said Julia Coronado, chief North America economist at BNP Paribas in New York. “Business investment is moderating, but it’s still very solid. It’s going to be a pretty long road for the housing recovery.”

The index of pending home resales climbed 2 percent, more than forecast, after a 3.1 percent gain the prior month, figures from the National Association of Realtors showed. The median estimate in a Bloomberg News survey called for a 1 percent increase.

More Jobless Claims

A report from the Labor Department showed applications for jobless benefits increased by 51,000 to 454,000 in the week ended Jan. 22. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg survey.

A Labor Department official said snow in four southern states in previous weeks created a backlog of claims that were processed last week.

Stocks fluctuated between gains and losses as the reports on durable goods and pending home sales, along with Qualcomm’s revenue forecast that beat projections, helped offset a credit downgrade for Japan and higher-than-estimated jobless claims. The Standard & Poor’s 500 Index was at 1,296.68 at 12 p.m. in New York, little changed from yesterday’s close.

Total orders for durable goods fell 2.5 percent, depressed by volatility in demand for commercial aircraft, the report from the Commerce Department showed. Excluding transportation, bookings increased 0.5 percent after a 4.5 percent jump in November, which was stronger than previously estimated and the biggest gain in eight months.

Unexpected Drop

The median forecast of 81 economists surveyed by Bloomberg projected a 1.5 percent increase in total orders. Estimates ranged from a drop of 3 percent to a 3.9 percent increase.

Demand for non-defense capital goods excluding aircraft, considered a proxy for future business investment, rose at a 9 percent annual rate in the three months ended in December compared with a 10 percent September three-month gain, indicating businesses continue to plan on updating equipment.

The gain last month was led by an 11 percent advance in demand for machinery and a 3.6 percent increase in bookings for communications gear.

Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as demand advanced in China, Australia and Latin America. Machinery sales rose 88 percent from the same quarter a year earlier, the company said today in a statement.

Building Factories

The Peoria, Illinois-based company forecast 2011 capital expenditures of about $3 billion, with more than half of that in the U.S. It said in 2010 it plans to build three domestic plants and five in other countries.

Qualcomm, the biggest maker of mobile-phone chips, yesterday forecast second-quarter revenue that topped analysts’ estimates. It benefits as consumers buy more devices that can surf the Web.

“We think there’s going to be a large and fast-growing market for smartphones,” Chief Financial Officer Bill Keitel said in a telephone interview. New, cheaper chips from Qualcomm will help drive sales of the devices in emerging markets this year, he said.

The U.S. economy grew at a 3.5 percent annual rate in the fourth quarter of 2010, up from a 2.6 percent rate in the previous three months, economists forecast the Commerce Department will report tomorrow. The acceleration was probably led by the biggest gain in consumer spending in four years.

The durable goods report showed bookings for commercial aircraft plunged almost 100 percent in December after a 60 percent drop the previous month.

Boeing Cancelations

Boeing Co., the largest U.S. civilian aircraft maker, yesterday forecast 2011 profit that trailed analysts’ estimates amid delays to its two marquee jets and scaled-back defense spending.

The Chicago-based company received orders for 55 aircraft last month, while 14 prior bookings were canceled, said spokesman Charles Bickers in a telephone interview.

The business spending that helped lead the economy out of recession may gain a second wind from a new tax provision that allows companies to depreciate 100 percent of investments in capital equipment this year, according to Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.

President Barack Obama on Jan. 25 embraced much of the business community’s agenda, calling in his State of the Union address for progress on stalled trade pacts, investments in roads and education, reworking the corporate tax code, and freezing discretionary spending to cut the deficit.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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