Goods Orders Probably Dropped as U.S. Business Spending Cooled
Demand for durable goods probably decreased in October, held back by slowdowns in U.S. business investment and exports, economists said before a report today.
The projected 0.7 percent drop in bookings for goods meant to last at least three years follows a 9.8 percent increase in September, according to the median forecast of 75 economists surveyed by Bloomberg. Other data may show property values are continuing to firm and consumers are gaining confidence.
Caterpillar Inc. (CAT) and Deere & Co. are among companies that have trimmed sales projections as they prepare for the effects of a fiscal cliff of U.S. tax increases and government budget cuts set to take effect in January. Economic slowdowns in China and Canada and a recession in the euro area are also taking a toll on sales overseas.
“It’s a downward momentum we’re seeing in the factory sector,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama. “Companies are cooling their heels until they see a resolution” of the fiscal cliff.
The Commerce Department’s durable-goods report is due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a decline of 4 percent to a 2.7 percent gain.
Deere (DE), the world’s largest agricultural equipment maker, cut its fiscal 2012 profit forecast in August after Asian and Latin American sales slowed. Last week, the Moline, Illinois- based company missed analysts’ estimates for fiscal fourth- quarter earnings after sales shrank 2 percent outside the U.S. and Canada.
“The world faces some big economic challenges today, ranging from the U.S. fiscal cliff possibilities to euro debt crisis and the slowdown in emerging-market economies,” Chief Financial Officer Rajesh Kalathur said on a Nov. 21 earnings call. “Today’s economic uncertainties are real and troubling.”
At Cleveland-based Eaton Corp. (ETN), an industrial equipment manufacturer, customers are putting off long-term commitments amid the uncertainty created by the fiscal deliberations, Chairman and Chief Executive Officer Alexander M. Cutler said.
“We’re seeing short-term lease activity at a very high level,” Cutler said at a Nov. 13 conference, indicating companies would rather pay more for the flexibility that renting equipment provides in the short-term than commit to taking on a large purchase over the long run. “People are paying a premium at this point to really deal with the uncertainty,” he said, even as demand is improving.
The pace of recovery, already slower than Fed policy makers had hoped, faces a “substantial threat” from the fiscal cliff, Federal Reserve Chairman Ben S. Bernanke said in a Nov. 20 speech to the Economic Club of New York. Fed policy makers have said they’ll keep interest rates close to zero until mid-2015 to help boost growth.
“The ability of the Fed to offset headwinds is not infinite,” Bernanke said.
Demand for aircraft probably helped limit the decline in the durable goods gauge in October. Boeing Co., (BA) the world’s largest aerospace company, received orders for 152 airplanes last month, up from 143 in September, according to company data.
Orders for capital goods excluding defense equipment and aircraft, a proxy for future business spending on items such as computers, engines and communications gear, fell 0.5 percent last month after rising 0.2 percent in September, according to the Bloomberg survey.
Businesses cut spending in the third quarter as commercial construction projects declined, according to the Commerce Department’s figures on gross domestic product. The purchase of equipment and software was little changed, the weakest reading in more than three years.
Another report today may show continued improvement in housing. Property values in 20 cities climbed 3 percent in the 12 months to September, the most in more than two years, economists project S&P/Case-Shiller data at 9 a.m. will show.
Housing shares have outperformed equipment-maker stocks as gains in construction contribute more to growth. The Standard & Poor’s Supercomposite Homebuilding Index is up 19.1 percent since June 29, compared with a 9 percent gain for the S&P Supercomposite Machinery Index over the same period.
Improved home values may be boosting consumer confidence, which is estimated to reach a four-year high. The Conference Board’s sentiment index, due at 10 a.m., rose to 73 this month, its highest level since February 2008, from 72.2 in October, according to a Bloomberg survey.
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