Orders for U.S. Durable Goods Fall as Demand Cools for Jets, Capital Goods
Orders for durable goods fell in October as demand for aircraft and business equipment cooled, indicating a slowing global economy may temper purchases of U.S. manufactured goods.
Bookings for equipment meant to last at least three years declined 0.7 percent, less than forecast, after a 1.5 percent drop the prior month that was more than twice as large as originally reported, data from the Commerce Department showed today in Washington. Excluding defense and aircraft, demand for computers and other business equipment decreased by the most since January.
The risk the global economy is losing steam as Europe deals with its debt crisis may lead overseas companies, which have supported U.S. factories, to scale back. Even so, a government tax break targeted at stimulating business investment may sustain capital investment while a weaker dollar keeps American- made goods attractive to foreign buyers.
“Manufacturing will continue to expand,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York. “We saw some tightness in inventories in the third quarter while demand was steady, so that suggests factories have some space to keep expanding output.”
Consumer spending rose less than forecast in October as Americans used the biggest gain in incomes in seven months to rebuild savings, another report from the Commerce Department showed today.
Purchases increased 0.1 percent, after a 0.7 percent gain the prior month. The median estimate of 82 economists surveyed by Bloomberg called for a 0.3 percent advance. Incomes rose 0.4 percent, and the savings rate climbed from a four-year low.
Stock-index futures held earlier losses after the reports as the cost of insuring European government debt against default rose to a record on concern the region’s crisis is worsening. The contract on the Standard & Poor’s 500 Index maturing next month fell 0.8 percent to 1,173.9 at 9:14 a.m. in New York. The yield on the 10-year Treasury note rose to 1.95 percent from 1.92 percent late yesterday.
A report from the Labor Department today showed applications for jobless insurance increased 2,000 in the week ended Nov. 19 to 393,000. Economists forecast 390,000 claims, according to the median estimate in a Bloomberg News survey.
Orders for durable goods were forecast to decrease 1.2 percent, according to the median estimate of 79 economists surveyed by Bloomberg News, following an initially reported 0.6 percent decline in September. Estimates ranged from a drop of 3.5 percent to a gain of 1.8 percent.
Orders excluding transportation equipment, like commercial aircraft, rose 0.7 percent after a 0.6 percent gain, the report on durable goods showed. Boeing Co. (BA), the largest U.S. aircraft maker, said it received 7 airplane orders in October, down from 59 the prior month and the smallest amount since April. Industry data, nonetheless, may not correlate with the government statistics on a month-to-month basis.
Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, dropped 1.8 percent after a 0.9 percent gain the prior month that was smaller than previously estimated.
Last month’s decrease extends a pattern of declines early in a quarter. Demand for non-military capital goods like computers, engines and communications gear, have dropped in the first month of a quarter in all but three instances since the end of 2005.
Non-Defense Capital Goods
Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, decreased 1.1 percent after decreasing 1 percent.
The Federal Reserve’s gauge of factory output expanded for a fourth month in October on growing demand for automobiles and computers, according to the central bank’s figures.
Some Fed policy makers said the central bank should consider easing policy further, according to minutes of their Nov. 1-2 meeting issued yesterday.
Further support for factory production may come from businesses rushing to qualify for a government credit aimed at spurring investment. A tax break allowing companies to depreciate 100 percent of investment in capital outlays in 2011 falls to 50 percent in 2012.
“We are certainly seeing some uncertainty and some concern here and there, but on the broad nature we are not pessimistic, and that vantage point coming directly from a lot of our customers,” Oscar Munoz, chief financial officer of railroad CSX Corp. (CSX), said at a Nov. 9 investor conference. “A majority of customers are telling us sit tight, don’t pull back on resources, I’ve got enough business that I can keep working.”
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