Manufacturing Powers U.S. Rebound as Orders Rise: Economy

Photographer: Luke Sharrett/Bloomberg

An employee works on a John Deere lawnmower at a Lowe's store in Louisville, Kentucky. Close

An employee works on a John Deere lawnmower at a Lowe's store in Louisville, Kentucky.

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Photographer: Luke Sharrett/Bloomberg

An employee works on a John Deere lawnmower at a Lowe's store in Louisville, Kentucky.

Orders poured into American factories in March, putting manufacturing at the center of a projected rebound in economic growth during the second quarter.

Bookings for durable goods, those meant to last at least three years, increased 2.6 percent, the biggest gain since November, a Commerce Department report showed today in Washington. The advance was broad-based, with makers of computers, machinery and metals among those benefiting.

More business investment and improvement in some global markets will boost manufacturers such as United Technologies Corp. (UTX) and Honeywell International Inc. The pickup in equipment demand combined with a rebound in consumer spending means the world’s largest economy will strengthen after harsh winter weather restrained growth in the first three months of the year.

“It sets things up very well for the second quarter,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, who accurately projected the gain in orders and is among the top durables forecasters over the past two years, according to data compiled by Bloomberg. “Business investment will be a solid contributor to growth.”

Stocks rose, with the Standard & Poor’s 500 Index trading near a record, as technology companies rallied after Apple Inc. results topped estimates. The S&P 500 climbed 0.2 percent to 1,878.61 at the close in New York.

Photographer: Luke Sharrett/Bloomberg

Child car seats are manufactured at the Dorel Juvenile Group factory in Columbus, Indiana, on March 25, 2014. Orders placed with American factories for durable goods rose more than forecast in March. Close

Child car seats are manufactured at the Dorel Juvenile Group factory in Columbus,... Read More

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Photographer: Luke Sharrett/Bloomberg

Child car seats are manufactured at the Dorel Juvenile Group factory in Columbus, Indiana, on March 25, 2014. Orders placed with American factories for durable goods rose more than forecast in March.

Other reports today showed consumer confidence shot up last week and more Americans filed claims for unemployment insurance benefits leading up to the Easter holiday.

Survey Results

The median forecast of 77 economists surveyed by Bloomberg called for a 2 percent advance in orders for durable goods. Estimates ranged from a 0.2 percent decline to a 3.6 percent gain. Bookings climbed 2.1 percent in February.

Stripping out the more volatile transportation category, orders rose 2 percent last month, the most since January 2013.

Producers of computers and electronics received 5.7 percent more orders in March than a month earlier, the biggest advance since November 2010.

Apple yesterday reported a surge in iPhone sales and showed fiscal second-quarter profits that beat analysts’ estimates. Chief Executive Officer Tim Cook reiterated that new products are in development. The company is said to be readying bigger-screen iPhones, a watch-like wearable device and a new Apple TV set-top box.

Consumer Confidence

Consumers are getting in a better mood to shop. The Bloomberg Consumer Comfort Index climbed to minus 25.4 in the period ended April 20, the second-strongest level since January 2008, from minus 29.1 the prior week, a report today showed. Americans were more upbeat about being able to provide for their families than at any time in six years, according to the data.

Stock-market gains are bolstering sentiment among wealthier households while an improving labor market boosts prospects for a broader swath of earners. Further wage gains may be needed to strengthen household budgets and keep a floor under confidence as the world’s largest economy regains its footing.

“Rising equity prices, which are sitting near all-time highs, and a slower pace of firings in the economy are bolstering consumer confidence across just about all income and demographic groups,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. Optimism among the highest earners is “critical for growth prospects in the current quarter and beyond,” since those Americans are responsible for an outsized share of consumer spending, he said.

Jobless Claims

Another report today showed more Americans than forecast filed applications for unemployment benefits last week as the Easter holiday period made it difficult to adjust the data for seasonal variations. Jobless claims increased 24,000 in the period ended April 19 to 329,000, the Labor Department reported.

The Commerce Department report showed orders for non-defense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications gear, increased 2.2 percent. It was the biggest gain in four months and followed a revised 1.1 percent drop that was smaller than previously estimated.

Shipments of those goods, used in calculating gross domestic product, climbed 1 percent in March after rising 0.7 percent, more than previously estimated.

“Demand is definitely on the rise,” said Gennadiy Goldberg, a strategist at TD Securities USA LLC in New York, who projected a 2.5 percent gain in orders. “It’s a very strong handoff into the second quarter.”

Global Growth

Companies getting a boost from stronger overseas markets include United Technologies, the maker of Pratt & Whitney jet engines and Otis elevators, which this week raised the lower end of its 2014 earnings forecast after beating analysts’ first-quarter profit estimates.

“We’re feeling pretty good about the economies,” Greg Hayes, chief financial officer of the Hartford, Connecticut-based company, said in an April 22 telephone interview. “Europe seems to be coming out of the doldrums and the U.S. is performing about as expected.”

Morris Township, New Jersey-based Honeywell increased the low end of its 2014 earnings forecast, after reporting a first-quarter profit that topped analysts’ estimates, as turbocharger sales benefited from a European auto rebound and U.S. growth spurred demand at its control-products unit.

Reports this month showed the manufacturing expansion accelerated in March, driven by gains in production and orders, as the economy shook off its winter doldrums. The Institute for Supply Management’s index advanced to 53.7 from 53.2 a month earlier, the Tempe, Arizona-based group said on April 1.

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

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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