Demand for U.S. Capital Goods Rises by Most in Three Months

Orders for U.S. capital goods climbed in August by the most in three months, a sign business investment continues to support the recovery.

Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent, the most since May, a Commerce Department report showed today in Washington. Demand for all durable goods dropped 0.1 percent, less than forecast.

Manufacturers like General Electric Co. (GE) continue to benefit from sales to China, India and other emerging markets even as they face a slowdown in domestic spending. Gains in business investment in the U.S. indicate companies are looking beyond the plunge in stocks and concern over the European debt crisis and are seeking to expand.

“Companies are still willing to continue with their investment intentions despite the recent financial-market volatility,” said Neil Dutta, an economist at Bank of America Corp. in New York. “The risk was always that the recent volatility would prompt a pullback among businesses. At the moment there are no signs of that happening in any meaningful way.”

Economists at Barclays Capital Inc. and JPMorgan Chase & Co. were among those who raised their tracking estimate for third-quarter growth after the figures showed stronger investment and inventory building.

Shares Fall

Stocks dropped amid growing concern that European leaders are divided over how to handle Greece’s debt crisis. The Standard & Poor’s 500 Index fell 2.1 percent to 1,151.06 at the 4 p.m. close in New York. The yield on the benchmark 10-year note rose to 1.99 percent from 1.97 percent late yesterday.

The median projection of 77 economists surveyed by Bloomberg News called for a 0.2 percent decline in total orders. Estimates ranged from a 3.4 percent drop to a 2.7 percent increase.

The August gain in orders for non-defense capital goods excluding aircraft, a proxy for future business investment, followed a 0.2 percent drop in July that was smaller than previously estimated.

Shipments of those items, used in calculating gross domestic product, increased 2.8 percent, the most since March, after rising a revised 0.4 percent gain the prior month. The Commerce Department had originally reported a drop for July.

Tax Break

The business spending that helped lead the economy out of recession in mid-2009 may be further supported by a December agreement between President Barack Obama and congressional Republicans. Companies will be able to depreciate 100 percent of capital equipment put in service by the end of this year.

Total orders were depressed by an 8.5 percent drop in demand for automobiles and parts, the biggest decrease since February 2010, today’s report showed.

Bookings climbed 5.5 percent for computers last month, and increased 7.8 percent for communications gear.

The report may ease concern manufacturing was slumping after recent regional data showed factories cutting back in September. New York-region factories shrank for a fourth straight month and manufacturing in the Philadelphia area contracted for a third time in four months, figures from the Federal Reserve showed.

The Institute for Supply Management’s factory production and orders indexes for August both showed contraction.

Any further weakening in manufacturing would be more of a concern as much of the growth in the second quarter came from corporate investment and trade as consumer spending stagnated.

Overseas Sales

Overseas sales remain a source of strength for some manufacturers, including General Electric.

“At a time of, I would say, global volatility, we still see robust demand for our infrastructure products,” Jeffrey Immelt, chairman and chief executive officer of GE, said Sept. 26 in Pune, India. “We still feel quite good about our prospects on a global basis.”

The Fed’s policy-setting committee on Sept. 21 said economic growth “remains slow” even as “business investment in equipment and software continues to expand.”

“There are significant downside risks to the economic outlook, including strains in global financial markets,” it said.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.