Drop in U.S. Durables Orders Masks Investment Gain: Economy

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Orders for U.S. durable goods fell in March by the most in three years, depressed by a pullback in demand for aircraft that masked gains in business investment.

Bookings for goods meant to last at least three years dropped 4.2 percent, more than forecast and the biggest decrease since January 2009, Commerce Department data showed today in Washington. Sales of non-military capital equipment excluding planes climbed for a second month, prompting some economists to raise first-quarter forecasts for gross domestic product.

Demand for cars and auto supplies is supporting companies from 3M Co. (MMM) to Texas Instruments Inc., showing manufacturing will underpin the world’s largest economy. At the same time, factories may give way to service industries as a pillar of the expansion as a slowdown in global growth curbs exports.

“There’s some caution looking ahead,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. “The new orders would suggest that there’s perhaps a modest reassessment taking place.” The shipments figure “actually bodes well for GDP” in the first quarter, he said.

Federal Reserve policy makers said at the conclusion today of their meeting that they expect the economy to expand gradually, refraining from new actions to lower borrowing costs.

The central bank “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” the Federal Open Market Committee said in a statement after the two-day meeting in Washington. Unemployment has fallen, “but remains elevated,” policy makers said.

Stocks Higher

Stocks rose, sending benchmark indexes higher for a second day, after better-than-estimated earnings from Apple Inc. to Boeing Co. (BA) The Standard & Poor’s 500 Index climbed 1.4 percent, the most in almost two weeks, to 1,390.69 at the close in New York.

Elsewhere today, a report showed the U.K. economy shrank 0.2 percent in the first quarter after contracting 0.3 percent in the prior three months as Britain slid into its first double- dip recession since the 1970s.

Estimates of 81 economists surveyed by Bloomberg News projected U.S. durable goods orders would fall 1.7 percent last month. Projections ranged from a drop of 4 percent to a gain of 2.2 percent.

Demand for transportation equipment dropped 12.5 percent, the most since November 2010, led by a 48 percent plunge in civilian aircraft bookings. Boeing said it received orders for 53 planes last month after demand surged to 237 in February.

Boeing Profit

Chicago-based Boeing today posted a first-quarter profit that beat analysts’ estimates and raised its 2012 forecast as it delivered more commercial jets while pushing production to record levels. The world’s biggest aerospace company is boosting output by more than 60 percent in the four years through 2014 to pare a record order backlog.

Bookings for automobiles and parts increased 0.1 percent after a 2 percent rise the previous month, today’s durable goods report showed.

Auto manufacturing has been bolstering factory growth. Cars last quarter sold at the fastest pace in four years, according to industry data.

3M, the maker of fuel system tuneup kits and Post-it Notes, yesterday jumped the most since January after posting a first- quarter profit that beat analysts’ estimates because of rising U.S. auto and industrial demand. The St. Paul, Minnesota-based company’s industrial and transportation unit posted sales of $2.66 billion, an 8.6 percent increase.

Business Equipment

Today’s report showed shipments of non-defense capital goods excluding aircraft, used in calculating GDP, increased 2.6 percent in March after rising 1.4 percent the previous month.

Bookings for such goods, a proxy for future business investment in items like computers, engines and communications gear, decreased 0.8 percent after a revised 2.8 percent increase the prior month. The February gain was previously estimated at 1.7 percent.

The gain in shipments prompted economists at Morgan Stanley in New York to raise their tracking estimate for growth in the first quarter to 2.9 percent from 2.7 percent before the data were released. At the same time, the drop in orders is “pointing to softer investment spending going forward,” Morgan Stanley economist Ted Wieseman said in a note to clients.

A Commerce Department report in two days will show the economy grew at a 2.5 percent annual rate from January through March after expanding at a 3 percent pace in the previous three months, according to the median forecast of economists surveyed by Bloomberg. The strongest gain in consumer spending in more than a year will probably be offset by a smaller contribution from inventory restocking, economists said.

Caterpillar

Caterpillar Inc. (CAT), the world’s largest maker of construction and mining equipment, is among companies still seeing gains in demand. The Peoria, Illinois-based company today raised its earnings forecast and posted first-quarter profit that topped analysts’ estimates.

Manufacturers mentioned gains in automotive and high- technology industries, the Fed said in its Beige Book business survey, published two weeks before today’s meeting in Washington. The firms “expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices,” the Fed said in the report.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

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