U.S. Economy: Goods Orders Unexpectedly Fall, Claims Drop

Orders for long-lasting goods unexpectedly fell in February, raising concern over the sustainability of the rebound in U.S. business investment.

Bookings for goods meant to last at least three years dropped 0.9 percent after a 3.6 percent gain the prior month that was larger than initially reported, the Commerce Department said today in Washington. Other reports showed fewer Americans filed claims for jobless benefits last week, and consumer comfort dropped to the lowest level in seven months.

The data on orders stands in contrast to other reports this month that showed production picked up in February and factory purchasing managers were more optimistic. While rising exports to China and other emerging economies will benefit manufacturers like Texas Instruments Inc. (TXN), the need for U.S. companies to replace outdated equipment may not be as pressing as earlier in the recovery.

“There is a risk that capital spending will be flat in the first half of the year,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. At the same time, he said, “the consumer will pick up the slack, driven by the labor market and also by the tax deal” President Barack Obama reached with Republicans in December.

The median forecast of 80 economists surveyed by Bloomberg News projected a 1.2 percent increase in orders after a previously reported 3.2 percent rise in January. Estimates ranged from a 1.6 percent decline to a 4.5 percent gain.

Fewer Claims

The number of workers filing claims for jobless benefits declined by 5,000 to 382,000 in the week ended March 19, Labor Department figures showed, in line with the median forecast of economists surveyed by Bloomberg. The total sum of those receiving government payments dropped to the lowest level in almost three years.

The Bloomberg Consumer Comfort Index dropped to minus 48.9 in the period to March 20 from minus 48.5 the prior week, another report today showed. The measure of the current state of the economy slumped to a 15-month low.

The highest gasoline prices in more than two years weighed on families already dealing with rising grocery bills. The report showed confidence among households with annual incomes exceeding $50,000 fell to the lowest level since March 2010, representing a risk to consumer spending, the biggest part of the U.S. economy.

“Households continue to operate under duress,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “Inflation may prove both higher and more persistent than desirable.”

Shares Climb

Stocks rose for a second day after corporate profits topped analysts’ estimates. The Standard & Poor’s 500 Index increased 0.9 percent to 1,309.66 at the 4 p.m. close in New York. The S&P Supercomposite Machinery Index rose 1.2 percent. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 3.41 percent from 3.35 percent late yesterday.

Orders for durable goods excluding transportation equipment decreased 0.6 percent after a 3 percent January decline. They were forecast to rise 2 percent. A plunge in demand for military equipment last month contributed to the decline.

Bookings for non-defense capital goods excluding aircraft, items like computers and communications gear, fell 1.3 percent after falling 6 percent the prior month. Shipments of such goods, used in calculating gross domestic product, increased 0.8 percent after falling 2.3 percent in January.

Other Reports

Manufacturing output climbed 0.4 percent in February after a 0.9 percent January gain that was three times as large as initially estimated, figures earlier this month from the Federal Reserve showed. The Institute for Supply Management’s factory index rose in February to the highest level since May 2004.

Given the discrepancies, “we would not be inclined to read too much into this report,” David Greenlaw, chief financial economist at Morgan Stanley in New York, said in a note to clients on the durable goods figures. “We expect continued rapid growth in capital spending over the course of 2011.”

The manufacturing industries that account for 11 percent of the economy are likely to remain at the forefront of the recovery as businesses replenish inventories.

“We have seen orders build through the quarter,” Ron Slaymaker, vice president of investor relations for Dallas-based Texas Instruments, said on a conference call with analysts March 8. “Based upon what we’re seeing through the first two months, we would expect that orders will be up solidly compared to the fourth quarter.”

Tax Break

The business spending that helped lead the economy out of recession in mid-2009 may get a boost from the December tax legislation that allows companies to depreciate 100 percent of investments in capital equipment this year and 50 percent in 2012.

Demand from fast-growing countries like China and Brazil is spurring U.S. shipments of machinery and consumer goods. Exports in January rose to the highest level on record.

One potential hurdle is the March 11 earthquake and tsunami in Japan, which prompted a nuclear crisis and caused electrical outages. U.S. companies are still trying to gauge the effects of the tragedy on international supply chains.

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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