Orders for U.S. goods meant to last several years unexpectedly decreased in October, raising the risk that companies will scale back on investments in new equipment.
Demand for so-called durable goods dropped 3.3 percent, the biggest plunge since January 2009, after a revised 5 percent jump in September that was larger than previously estimated, figures from the Commerce Department showed today in Washington.
A slowdown in capital spending would deprive the world’s largest economy of a source of strength just as household purchases are starting to accelerate. While overseas demand is helping companies like Rockwell Automation Inc., there may be less of a contribution to growth from inventory rebuilding in coming months.
“Business investment is slowing, but the numbers we got today might overstate the magnitude,” said Brian Jones, an economist at Societe Generale in New York, who said the first month of the quarter typically shows weakness.
Other government reports today showed consumer spending rose in October for a fifth month and applications for unemployment benefits fell last week to the lowest level since July 2008.
Household purchases advanced 0.4 percent after a 0.3 percent gain in September that was larger than previously estimated, Commerce Department figures showed. Incomes climbed 0.5 percent and the Federal Reserve’s preferred measure of inflation was little changed, capping the smallest 12-month gain since records began five decades ago.
Jobless claims declined by 34,000 to 407,000 in the week ended Nov. 20, according to Labor Department figures. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000. The total number of people receiving unemployment insurance decreased to the lowest in two years, and those on extended payments also fell.
Stock-index futures extended earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in December rose 0.7 percent to 1,186.70 at 9:20 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.83 percent from 2.78 percent late yesterday.
Economists forecast total durable goods orders would increase 0.1 percent, according to the median of 74 projections in a Bloomberg News survey. Estimates ranged from a drop of 2.7 percent to an increase of 4.5 percent.
Excluding transportation, bookings decreased 2.7 percent. They were forecast to increase 0.6 percent, according to the Bloomberg survey.
Orders for non-defense capital goods excluding aircraft, considered a proxy for future business investment, fell 4.5 percent after a 1.9 percent gain in September. The government had previously estimated such orders dropped 0.2 percent in September.
The swings in orders for capital goods may reflect calendar effects that the government isn’t able to capture with its seasonal adjustments.
“I would expect the trend to be slowing a little bit in the core numbers but I wouldn’t get too concerned if you see a little bit of weakness in them,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said before the report. “You have gotten very strong growth in the first of this year and it may be hard to sustain that pace.”
Non-Defense Capital Goods
Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, decreased 1.5 percent after a 1 percent gain in September.
The so-called core capital goods figures typically are weaker at the start of the quarter, particularly for October, said Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
The world’s largest economy grew at a 2.5 percent annual pace from July through September, the Commerce Department said yesterday. Corporate profits increased 2.8 percent during the third quarter and were up 28 percent from the same three months last year.
Today’s report counters others suggesting factories are supporting growth in the fourth quarter.
The Federal Reserve last week said factory output increased in October by the most in three months. The 0.5 percent increase in the manufacturing component of the industrial production report was led by makers of autos, computers and communications gear.
Foreign sales are a bright spot for factories and exports in September rose to the highest level in two years, according to Commerce Department data released Nov. 10. Some businesses are responding to greater demand from the U.S. and abroad by replacing aging equipment and bringing more parts of their plants online.
Rockwell Automation, the maker of factory software, said it sees interest rising in large-scale plant projects for full- production lines in developed markets, a sign that those economies may be picking up steam.
“These are projects that are significant expansion in production capacity or new lines,” Chief Executive Officer Keith Nosbusch said in an interview Nov. 9. “These would be larger capital spending investments,” which means those markets have a more positive outlook on their future.