Orders for U.S. Capital Goods Rise as Investment Picks Up

Orders for U.S. business equipment climbed in May, showing corporate investment is helping revive the economy after a slump at the start of the year.

Bookings (CGNOXAI%) for non-military capital goods excluding aircraft rose 0.7 percent after a 1.1 percent drop in April, data from the Commerce Department showed today in Washington. Demand for all durable goods -- items meant to last at least three years -- decreased 1 percent, reflecting declines in the volatile transportation and defense categories.

Companies are expanding capacity as the world’s largest economy bounces back from a first-quarter contraction that was the worst since the recession five years ago. Stronger orders for cars and homes will probably help keep manufacturers busy, giving growth a boost in the second half of the year.

“When you look at business fixed investment, the trend is improving,” Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “The auto sector is chugging along.”

Another report today showed gross domestic product slumped at a revised 2.9 percent annualized rate in the first quarter, the worst performance since early 2009 during the depths of the last recession, according to Commerce Department data. It represented a downgrade from the previously reported 1 percent decrease and reflected a smaller gain in consumer spending and a bigger trade deficit.

Shares Fall

Stock-index futures dropped after the reports as the decrease in GDP was larger than projected. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.2 percent to 1,940 at 8:34 a.m. in New York.

Estimates for total durable goods orders in the Bloomberg survey ranged from a decline of 3 percent to an increase of 2 percent. The April reading was revised to show a 0.8 percent gain compared with a previously reported 0.6 percent advance.

Bookings for non-military capital goods excluding aircraft are considered a proxy for future business investment. Last month’s gain was led by growing demand for computers and automobiles.

Shipments (CGSHXAI%) of those goods, used in calculating GDP, climbed 0.4 percent in May after dropping 0.4 percent the prior month.

The May figures for overall durable goods included a 4 percent decrease in demand for commercial aircraft and a 31.4 percent slump in orders for military capital equipment, according to the Commerce Department’s report.

Aircraft Orders

Boeing Co. (BA), the Chicago-based aerospace company, said it received 99 orders for planes last month, up from 70 in April and the second-highest tally this year. The government’s figures don’t also track corporate data on a month-to-month basis.

Manufacturing has improved in recent months, according to the Institute for Supply Management’s index. The Tempe, Arizona-based group’s gauge climbed to 55.4 in May, the highest level since December, from 54.9 a month earlier.

Factories are being helped by further gains in auto demand. Cars and light trucks sold at a 16.7 million pace in May, the fastest rate since February 2007. Today’s durable goods report showed a 2.1 percent increase in orders for motor vehicles and parts.

Residential real estate also is providing support to manufacturing. Sales of new and previously owned homes rose in May, reports showed earlier this week. The prospect for further labor market gains is helping keep homebuilders such as Hovnanian Enterprises upbeat about the housing rebound.

Builder Outlook

“A pickup in the overall U.S. economy -- particularly one that is driven by the creation of well-paying jobs -- will go a long way toward accelerating the recovery of the housing market across the country,” Ara Hovnanian, president and chief executive officer of the Red Bank, New Jersey-based company, said on a June 4 earnings call.

Employers added 217,000 workers to payrolls in May, lifting the average monthly advance so far this year to 213,600, the most for a year’s average since 1999.

GDP will probably grow at a 3.5 percent annualized growth rate this quarter after the first-quarter slump, according to the median projection in a Bloomberg survey conducted June 6-11. The economists estimate the economy will grow at a 3.1 percent annualized pace on average in the final two quarters.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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

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