U.S. Durable Goods Orders Gain Points to Better Spending

Demand for U.S. durable goods rose in March for a third consecutive month, indicating business investment will pick up.

Bookings for equipment meant to last at least three years climbed 2.5 percent after a 0.7 percent gain the prior month that reversed a previously reported drop, the Commerce Department said today in Washington. The increase reflected growing demand for machinery, computers and automobiles.

Exports to emerging economies like China and the need to increase stockpiles are drivers of the factory rebound spearheading the recovery. Federal Reserve policy makers today acknowledged the economy is growing at “a moderate pace,” one reason why they agreed to finish $600 billion in bond purchases on schedule in June.

“Any time you end a quarter on an up note, the next quarter has a better outlook,” said Jonathan Basile, a senior economist at Credit Suisse in New York. “The manufacturing sector is growing at a healthy clip. It’s still growing, supported by global demand and weak dollar.”

Stocks climbed after the Fed’s announcement. The Standard & Poor’s 500 Index rose 0.6 percent to 1,355.66 at the 4 p.m. close in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 3.36 percent from 3.31 percent late yesterday.

Median Forecast

The median forecast of 76 economists surveyed by Bloomberg News projected a 2.3 percent increase in orders after a previously reported 0.6 percent February drop. Estimates ranged from a decline of 3.5 percent to a gain of 6.7 percent.

Orders excluding transportation equipment rose 1.3 percent, the best performance so far this year.

The report failed to capture a surge in demand at Boeing Co. (BA) The largest U.S. maker of aircraft said this month it received orders for 98 airplanes in March, up from 21 the prior month. The Commerce Department reported a 0.9 percent increase in demand for commercial airplanes last month. Industry data may not correlate precisely with the government statistics on a month-to-month basis.

Orders for non-defense capital goods excluding aircraft, items like computers and communications gear, increased 3.7 percent after increasing 0.5 percent the prior month. Shipments of such goods, used in calculating gross domestic product, increased 2.2 percent after increasing 0.4 percent.

Nonetheless, the data indicate business investment cooled last quarter. Shipments rose at a 2.2 percent annual rate in the three months to March compared with a 7.8 percent gain in the last quarter of 2010.

Broad-based Gain

Demand for machinery rose 4.2 percent, increased 10 percent for computers and related products and rose 3.7 percent for autos.

Economists may mark up forecasts for first-quarter gross domestic product after the report showed inventories jumped. Stockpiles grew by 1.3 percent in March, the same as in the prior month.

Japan’s March 11 earthquake and subsequent nuclear crisis have affected some producers more than others.

Hyundai Motor Co. (005380), South Korea’s largest carmaker, posted a 32 percent gain in U.S. sales in March while Japan’s Toyota Motor Corp. reported a monthly decline. Japan’s Nissan Motor Co. and Honda Motor Co. both posted sales gains even as they braced for the full effect of the earthquake, which is still disrupting auto and parts production.

U.S. auto sales fell in March to a 13.06 million annual pace from 13.38 million in February, which was the most in 18 months, according to industry data.

Earthquake Disruption

Microchip Technology Inc. (MCHP) Chief Executive Officer Steve Sanghi last month was fielding a “barrage” of requests for replacement parts after the earthquake disrupted global semiconductor supplies.

Customers should order at least 12 weeks’ worth of their needs for microcontrollers, used in devices from washing machines to coffee makers to car parts, Sanghi wrote in a March 21 letter. “I am expecting a huge surge of redesign inquiries,” Sanghi wrote.

Texas Instruments Inc. (TXN), the largest analog-chipmaker, on April 18 forecast second-quarter revenue and profit that fell short of some analysts’ estimates as lower Japanese demand and falling mobile-phone chip sales hurt orders. Texas Instruments said the earthquake and tsunami curbed demand in Japan and cut output at the plants it operates, as well as those of its customers and suppliers.

Tax Break

The business spending that helped lead the economy out of recession in mid-2009 may be helped this year in part by President Barack Obama’s December compromise with congressional Republicans on taxes. Companies will be able to depreciate 100 percent of investments in capital equipment in 2011.

Demand from fast-growing countries like China and Brazil is spurring U.S. exports of machinery and consumer goods. Sales overseas reached the highest level on record in January before falling in February for the first time in six months.

“The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” the Federal Open Market Committee said today in its statement after a two-day meeting in Washington. While “household spending and business investment in equipment and software continue to expand,” policy makers acknowledged that commercial and residential construction remains depressed and that inflation “has picked up in recent months.”

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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