Gain in U.S. Capital Equipment Orders Exceeds Prior Estimate

Orders for equipment such as computers and electrical gear climbed in October by the most in eight months, indicating U.S. manufacturing is stabilizing heading into the looming fiscal cliff.

Bookings for non-defense capital goods excluding aircraft, a proxy for future spending, rose a revised 2.9 percent after dropping 0.5 percent in September, the Commerce Department reported today in Washington. The gain was previously estimated at 1.7 percent, according to last week’s durable-goods report. Total factory orders, which include non-durable goods such as petroleum and chemicals that are often influenced by prices, climbed 0.8 percent in October, exceeding the median estimate of economists surveyed by Bloomberg that projected little change.

Weakness in capital-goods demand “had been one of the downside risks to the growth outlook,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a research note before the report. “Sustained improvement in the core capital goods number -- which is admittedly quite volatile -- would mitigate this risk.”

A pickup in orders may mean business investment is poised to rebound next year should lawmakers find a way to avert the so-called fiscal cliff of tax increases and spending cuts slated to take effect in 2013. Additionally, Ford Motor Co. (F) is among companies seeing a pickup is sales as Americans in the path of superstorm Sandy begin to replace damaged automobiles.

Survey Results

The median forecast of 62 economists in a Bloomberg survey called for little change in factory orders. Estimates ranged from a gain of 1 percent to decline of 2 percent. The Commerce Department revised the September figure to a 4.5 percent increase from previously recorded growth of 4.8 percent.

Other reports today showed service industries expanded at a faster pace than forecast in November, productivity rose more than previously estimated in the third quarter, and superstorm Sandy limited employment gains last month.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, rose to 54.7 in November from the prior month’s 54.2, the Tempe, Arizona-based group said.

The measure of employee output per hour climbed at a 2.9 percent annual rate, the biggest gain in two years and up from 1.9 percent in the prior three months, revised Labor Department figures showed today.

Private Payrolls

Companies added 118,000 workers to payrolls in November following a revised 157,000 gain in October, data from the Roseland, New Jersey-based ADP Research Institute showed.

Stocks were little changed after the reports. The Standard & Poor’s 500 Index was at 1,406.06 at 10:04 a.m. in New York, down less than 0.1 percent from yesterday’s close.

Factory orders excluding the volatile transportation category, increased 1.3 percent in October after rising 1.2 percent in September, according to today’s Commerce Department report.

The gain in bookings for non-military capital goods excluding aircraft in October was paced by growing demand fro turbines, communications gear and electrical equipment.

Shipments of those goods, which are used in calculating gross domestic product, fell 0.1 percent in October, less than the 0.4 percent drop the Commerce Department estimated in last week’s durable goods report.

Inventories

Factory inventories climbed 0.1 percent in October, today’s report showed. Manufacturers had enough goods on hand to last 1.28 months at the current sales pace, the same as in September.

Euro-area manufacturing contracted in November for the 16th month while factory output rose in China and Russia, underscoring the divergence of the global economic recovery, other data showed this week.

In the U.S., automakers remain a source of strength, with sales momentum increasing in the wake of superstorm Sandy. The storm, which hit the East Coast on Oct. 29, helped boost car and light-truck sales in November to the best monthly pace in more than four years as consumers began replacing hundreds of thousands of damaged or destroyed vehicles. The annualized industry wide light-vehicle sales rate accelerated to 15.5 million from 14.2 million.

Ford this week reported a 6.4 percent increase in November sales from a year ago, exceeding analysts’ estimates of a 2.4 percent gain. The Dearborn, Michigan-based automaker said it is planning to build 750,000 vehicles in the first quarter, an 11 percent increase from the same three months this year.

A report earlier this week showed manufacturing unexpectedly contracted in November, the fourth decline in six months, as factory managers grew more concerned about the potential economic toll stemming from the fiscal cliff of tax increases and spending cuts.

The Institute for Supply Management’s factory index fell to 49.5, the lowest since July 2009, from 51.7 in October. Fifty marks the dividing line between expansion and contraction.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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