Orders for U.S. Capital Goods Stagnate as Spending Slumps

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A customer shops for lamps in the showroom of an Ikea store in the Brooklyn borough of New York, on Sept. 26, 2012. Close

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Photographer: Victor J. Blue/Bloomberg

A customer shops for lamps in the showroom of an Ikea store in the Brooklyn borough of New York, on Sept. 26, 2012.

Orders for business equipment such as computers and communications gear stalled in September, signaling a slowdown in investment that may curb U.S. economic growth.

Bookings for non-defense capital goods excluding aircraft, considered a proxy for future spending, were little changed after rising 0.2 percent in August, a Commerce Department report showed today in Washington. Other data showed consumer confidence is climbing even as the labor market makes limited progress.

“Businesses are not prepared to commit to big-ticket investments,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The uncertainty and global slowdown are clear negatives for capital spending. The third quarter was soft, and we can’t see the fourth quarter being much better.”

Companies such as Caterpillar Inc. (CAT) have tempered sales projections as demand from Asia to Europe weakens and concern mounts the U.S. will fail to avert the so-called fiscal cliff of tax increases and spending cuts slated to take effect next year. Economists at Morgan Stanley and JPMorgan Chase & Co. were among those cutting third-quarter growth estimates after the report.

The number of Americans filing first-time applications for unemployment benefits fell last week, returning to a level that signals the job market is making little headway, figures from the Labor Department also showed today.

Fewer Claims

Jobless claims decreased by 23,000 to 369,000 in the week ended Oct. 20. The drop comes after weeks of big swings caused by difficulties in adjusting the data for seasonal variations at the start of a quarter.

“Claims are signaling more of the same in the labor market,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who forecast applications would drop to 370,000. “There is no pickup, nor any further deceleration. Employment growth is moving along at a pretty disappointing pace.”

Stocks rose amid better-than-estimated corporate earnings. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,412.97 at the close in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 1.83 percent from 1.79 percent late yesterday.

A report from the U.K. showed Britain exited a double-dip recession in the third quarter with the strongest growth in five years, boosted by the Olympics and a surge in services.

Gaining Confidence

American consumer confidence reached a six-month high last week as households became less pessimistic about the economy, another report today showed. The Bloomberg Consumer Comfort Index rose to minus 34.6 in the period ended Oct. 21, the eighth gain in the last nine weeks, from minus 34.8 the previous period. Views of the economy were the brightest since early May.

Caterpillar, the world’s largest maker of construction and mining equipment, this week projected sales growth for 2013 that would be slower than in the previous three years as the global economy decelerates. Production across much of the company has been reduced, with temporary shutdowns and dismissals to help work through excess stockpiles, it said.

“We’re already taking actions to lower production to deal with the inventory and we’re ready to do more if we need to,” Michael DeWalt, director of investor relations at Peoria, Illinois-based Caterpillar, said on an Oct. 22 conference call. “We’re not banking on a big pickup in the economy.”

Total Orders

The Commerce Department data showed demand for all durable goods climbed 9.9 percent last month after dropping 13.1 percent in August as airplane orders rebounded. The median forecast of 77 economists surveyed by Bloomberg called for a 7.5 percent gain. Estimates ranged from gains of 0.3 percent to 14 percent.

Orders for non-defense capital goods excluding aircraft dropped at a 23.5 percent annual rate from July through September, the biggest quarterly decline since the first three months in 2009, today’s Commerce Department report showed.

Shipments of those capital goods, used in calculating gross domestic product, decreased 0.3 percent in September from the prior month after dropping 1.2 percent in August. For the quarter, sales decreased at a 4.9 percent annual rate, the worst performance since the second quarter of 2009 and a sign businesses cut spending.

The economy grew at a 1.8 percent annual rate in the third quarter after expanding at a 1.3 percent pace the prior three months, according to the median forecast of economists surveyed by Bloomberg ahead of Commerce Department data tomorrow. It would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.

GDP Forecasts

Morgan Stanley’s David Greenlaw and JPMorgan’s Mike Feroli each reduced their third-quarter GDP estimate to 1.6 percent from a prior forecast of 1.8 percent after the durable goods report. Barclays Plc and Nomura Securities International Inc. also cut projections.

Federal Reserve policy makers yesterday said the economy is still growing modestly and unemployment remains elevated as they maintained $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion.

The slowdown in business investment was among the developments the central bank highlighted in discussing the current state of the economy.

Today’s report showed orders for computers dropped 2.5 percent in September and demand for communications gear decreased 4.5 percent after plunging 9 percent in August.

Sales Forecasts

Manufacturers are acknowledging a slowdown. Advanced Micro Devices Inc. (AMD), the second-largest maker of processors for personal computers, on Oct. 18 forecast fourth-quarter sales that will miss analysts’ estimates and said it will cut staff by 15 percent. General Electric Co. (GE), Parker Hannifin Corp. (PH), and Honeywell International Inc. (HON) are among the industrial companies that have also said they’ve been hurt by weak demand.

Factories may remain under pressure heading toward the more than $600 billion in tax increases and federal spending cuts that take effect early next year unless Congress acts to forestall them.

Also today, figures from the National Association of Realtors showed Americans signed fewer contracts than forecast in September to purchase previously owned homes, a sign the industry’s recovery will be uneven.

The index of pending home resales climbed 0.3 percent after a 2.6 percent drop in August. The reading compared with a median forecast of a 2.5 percent gain in a Bloomberg survey of 33 economists.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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

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