Plunge in Goods Orders May Restrain U.S. Expansion: Economy

Demand for U.S. durable goods other than transportation equipment unexpectedly dropped in August for a third consecutive month, signaling that slowdowns in business investment and exports will restrain the economic expansion.

Orders for goods meant to last at least three years, excluding volatile demand for airplanes and automobiles, fell 1.6 percent last month after decreasing 1.3 percent in July, the Commerce Department reported today in Washington. Total bookings plunged 13.2 percent, the most since January 2009, as demand for civilian aircraft collapsed.

“The corporate sector is getting very nervous from a combination of worries about Europe, worries about the fiscal cliff and a general lack of confidence in the recovery,” said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York, whose estimate for the drop in ex- transportation orders was the closest of economists surveyed.

Companies such as Caterpillar Inc. (CAT) are cutting forecasts as slowing global growth dents sales, while the approaching fiscal cliff of tax increases and government budget cuts causes U.S. businesses to curb spending. Other reports today showed fewer Americans filed claims for jobless benefits last week and consumer confidence improved, easing concern that household purchases will cool further.

Stocks advanced, snapping a five-day decline for the Standard & Poor’s 500 Index, as Spain pledged to cut its deficit and speculation grew that China will do more to support economic growth. The S&P 500 rose 1 percent to 1,447.15 at the close in New York.

Survey Results

The median forecast of 53 economists surveyed by Bloomberg projected a 0.2 percent gain in ex-transportation goods orders. The Commerce Department revised July data down from a previously reported 0.6 percent decrease.

The decline in total orders was more than twice as large as the 5 percent drop projected by the median estimate in the Bloomberg survey.

The world’s largest economy expanded at a 1.3 percent annual pace in the second quarter after growing at a 2 percent rate from January through March, other figures from the Commerce Department showed today. The revision, the third estimate for the quarter, compared with a previously reported 1.7 percent gain.

The reduction in growth reflected smaller gains in consumer spending and farm inventories, the latter caused by the drought.

The data today were more positive overseas. The U.K. economy shrank less than previously estimated in the second quarter and disposable incomes rose the most since 2009, boding well for the prospects of a recovery, data from the Office of National Statistics showed in London.

Aircraft Bookings

The U.S. Commerce Department reported bookings for civilian aircraft, which are often volatile, slumped 101.8 percent in August after surging 51.1 percent the prior month. The size of the decrease reflects cancellations to orders received in prior months, the agency said. Boeing Co. (BA), the largest U.S. aircraft maker, received an order for a single plane last month, down from 260 in July.

Orders for non-defense capital equipment excluding airplanes, a proxy for future business investment in items such as computers, engines and communications equipment, rose 1.1 percent after decreases of 5.2 percent in July and 2.7 percent in June, the Commerce Department data showed.

Shipments of those goods, used in calculating gross domestic product, fell 0.9 percent after decreasing 1.1 percent in July.

Caterpillar Forecast

Caterpillar, the world’s biggest construction and mining equipment maker, this week cut its outlook for 2015 earnings after commodity producers reduced capital expenditures. While a global recession remains possible, Caterpillar is forecasting moderate and “anemic” growth through 2015, Chairman and Chief Executive Officer Doug Oberhelman said in a presentation to analysts on Sept. 24.

Economists at Barclays Plc.’s investment-banking unit in New York were among those trimming estimates for third-quarter growth after the durables figures. They now project a 2 percent gain from July through September, down from a prior estimate of 2.1 percent.

Other analysts are raising estimates as the drop in sales and orders cause inventories to swell. Stockpiles of durable goods climbed 0.6 percent in August after a 0.8 percent gain the prior month, the biggest back-to-back increases in a year. Morgan Stanley raised its forecast for third-quarter GDP to 1.9 percent from 1.8 percent as the increase in stocks offset a reduction to their estimate for business investment.

Claims, Confidence

Today’s data on the labor market and consumer confidence helped allay some of the concern.

The number of applications for jobless benefits decreased 26,000 to 359,000 in the week ended Sept. 22, the lowest since July, Labor Department figures showed.

The Bloomberg Consumer Comfort Index rose to minus 39.6 in the week ended Sept. 23, the highest level since July, from minus 40.8 in the previous period, according to another report. Americans grew less pessimistic about the economy as stock prices climb and home values rebound.

“The labor market is not getting any worse,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC. “But jobless claims only tell you one side of the equation, so they don’t automatically mean that hiring is going up.”

Payroll Gains

A lack of jobs may be preventing confidence from climbing even more. Employers added 96,000 workers to payrolls last month, less than the 130,000 projected, and the unemployment rate fell to 8.1 percent after 368,000 people left the workforce, according to Labor Department data. The jobless rate has exceeded 8 percent for 43 months, the longest stretch since monthly records began in 1948.

“The economy is still pretty sluggish with unemployment where it is and with consumer confidence where it is,” Thomas J. Folliard, chief executive officer of auto retailer CarMax Inc. (KMX), based in Richmond, Virginia, said on a Sept. 20 earnings call. “It’s impacting the customer’s willingness to go out and sign up for as long as a six-year loan.”

Other news on the jobs front today was also less dire. The economy probably created more jobs than currently estimated in the year ended March 2012, the Labor Department said in preliminary projections.

The number of jobs added to payrolls will probably be revised up by 386,000 from the current estimate of 1.94 million, the Labor Department said on its website.

To boost growth and stimulate more hiring, the Federal Reserve this month said it would keep its target interest rate near zero until at least mid-2015 and began a third round of stimulus, buying $40 billion in mortgage bonds a month.

The nascent housing-market recovery may prove to be uneven, other data today showed. Americans signed fewer contracts to purchase previously owned homes in August, according to figures from the National Association of Realtors.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Alexander Kowalski in Washington at akowalski13@bloomberg.net

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

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