Orders to manufacturers unexpectedly dropped in September and households were more glum in October for a third consecutive month, showing the U.S. economy was taking a step back heading into the fiscal gridlock that partially shut down the federal government.
Bookings (CGNOXAI%) for non-military capital goods excluding aircraft, which reflect demand for productivity-enhancing equipment like machinery and electrical gear, decreased 1.1 percent last month, the second drop in three months, the Commerce Department reported today in Washington. Other data showed consumer sentiment sank to a 10-month low.
“Like consumers and households, we’re seeing the same kind of erosion of confidence in the business community,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, the second-best capital goods forecaster over the past two years, according to data compiled by Bloomberg. “Political uncertainty has reduced the incentive on the part of U.S. businesses to engage in meaningful capital expenditures.”
A rebound in manufacturing, which accounts for about 12 percent of the economy, will depend on how quickly confidence is restored as lawmakers turn to meeting new budget deadlines in early 2014. Disappointing gains in employment and the prospect of a protracted political battle raises the risk that consumer spending will cool heading into the holiday-shopping season.
Stocks rose, sending the Standard & Poor’s 500 Index to a record close, as Amazon.com Inc. and Microsoft Corp. sales beat estimates while the drop in consumer confidence stoked speculation the Federal Reserve will delay scaling back monetary stimulus. The S&P 500 climbed 0.4 percent to 1,759.77 at the close in New York.
A U.S. slowdown would come as some of the nation’s trading partners are showing signs of strengthening. Economic growth in the U.K. accelerated in the third quarter to its fastest pace in more than three years as the recovery continued across all main industries, figures from the Office for National Statistics showed today in London.
The Thomson Reuters/University of Michigan final consumer sentiment index for the U.S. decreased to 73.2 in October, the weakest this year, from 77.5 in September, the group reported. The index averaged 89 in the five years prior to the recession that began in December 2007, and 64.2 during the 18-month slump that ended in June 2009.
The Michigan sentiment index decreased along with the Bloomberg Consumer Comfort Index (COMFCOMF), which has tumbled each of the last four weeks. The Bloomberg gauge fell in the period ended Oct. 20 to minus 36.1, the lowest since February, from minus 34.1.
The decline in capital goods orders for September reported by the Commerce Department was at odds with most forecasts. The median estimate in a Bloomberg survey of 16 economists called for a 1 percent gain. The figures also showed a surge in aircraft demand led to a 3.7 percent jump in total durable goods bookings.
“The more you look into it, the more disappointing it gets,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “It kind of raises doubts about the sustainability of the manufacturing sector to continue to underpin economic growth.”
Orders (DGNOXTCH) excluding transportation equipment, where demand is often volatile month to month, fell 0.1 percent after a 0.4 percent decrease in August.
Demand for non-defense capital goods excluding aircraft decreased in September after a 0.4 percent gain in August and a 3.5 percent slump in July. Such orders are considered a proxy for future business investment in computers, electronics and other equipment.
Shipments of those products, a measure used to calculate gross domestic product, fell 0.2 percent in September after rising 1.1 percent the prior month. Sales were down 2.9 percent over the past three months at an annualized rate, compared with a 0.9 percent decline at the end of the second quarter.
Caterpillar Inc. (CAT), the biggest maker of construction and mining equipment, cut its 2013 sales and profit forecast this week after a slump in orders from commodity producers.
“There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014,” Chairman and Chief Executive Officer Doug Oberhelman said in a statement.
Today’s report showed bookings for commercial aircraft increased 57.5 percent in September after a 5.4 percent gain. Chicago-based Boeing Co. said it received 127 aircraft orders in September, up from 16 the previous month.
Demand for motor vehicles has also been a bright spot for manufacturers, with cars and light trucks selling at a 15.2 million annualized rate in September after climbing in August to the fastest annualized pace since 2007, figures from Ward’s Automotive Group showed.
“The vehicle fleet has aged, so really vehicle assembly has nowhere to go but up,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, adding that Boeing, the world’s largest planemaker, is also looking at “a bottomless pit of orders.”
Ford Motor Co. (F) earned a $2.3 billion profit in North America in the third quarter and raised its forecasts for pretax profit and operating margin for the full year. The Dearborn, Michigan-based company said yesterday its automotive sales rose 12 percent to $33.9 billion. It also earned a rare profit on overseas operations on rising demand for Focus compact cars in China and B-Max vans in Europe.
Benton Harbor, Michigan-based Whirlpool Corp. (WHR) is also seeing signs of stronger demand in some parts of the world, while progress in the U.S. housing market boosts demand for its washers and dryers.
“In North America, we are increasing our industry demand assumption to approximately 9 percent for the year as we continue to see positive trends in U.S. housing,” Chief Executive Officer Jeff Fettig said on an Oct. 22 earnings call. In Latin America, “we’re now seeing a pickup in demand and we expect that positive trend to continue during the fourth quarter.”
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