Goods Orders in U.S. Probably Dropped as Aircraft Demand Slumped
Orders for U.S. durable goods probably fell in January for the first time in five months as demand for commercial aircraft slumped, economists forecast before a report today.
The 4.7 percent drop in bookings for goods meant to last at least three years would follow a 4.3 percent gain in December, according to the median forecast of 77 economists surveyed by Bloomberg. Excluding demand for transportation equipment, which is volatile month to month, orders may have risen 0.2 percent, a fifth consecutive gain. Another report may show pending sales of existing homes rose.
Healing overseas markets, sustained demand for automobiles and leaner inventories are combining to stabilize manufacturing beyond the monthly swings in aircraft orders. Further strides in the industry combined with a rebounding housing market would support Federal Reserve Chairman Ben S. Bernanke’s view that the economy will pick up after cooling at the end of 2012.
“We should see modest recovery in manufacturing, which will continue to show moderate strength throughout the year,” said Robert Rosener, an economist at Credit Agricole CIB in New York and the top forecaster of non-transportation orders in the past two years, according to data compiled by Bloomberg. “We certainly have strength in auto manufacturing, and with the recovery in housing so strong, that should contribute.”
The Commerce Department will release the durable-goods data at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a drop of 8.3 percent to a 3 percent gain.
The four months of gains in total durables orders through December is the longest span since comparable records began in 1992. An increase in bookings excluding transportation gear last month would mark the fifth consecutive advance, representing the longest since an eight-month stretch through March 2006.
Aircraft bookings, which feed into the headline reading of durable orders, probably declined. Boeing Co. (BA), the Chicago-based aerospace company, said it received two orders in January, down from 183 the prior month. Boeing is contending with safety concerns related to batteries on its 787 Dreamliner.
Outside of transportation equipment, orders are holding up. Bookings for non-defense capital goods excluding aircraft, considered a proxy for future business investment, were little changed last month following a 0.3 percent drop in December, economists project.
At the same time, there has been of a pattern of declining demand in the first month of a quarter. In all but three instances since the beginning of 2009, non-military capital goods excluding planes orders have decreased in the first month of a quarter before rebounding in following months.
A global economy that is regaining its footing will support American manufacturers. Goods exports climbed in December to the second-highest level in records back to 1992, Commerce Department figures showed Feb. 8.
Domestic demand from companies and consumers will help as well. Business outlays on equipment and software grew at a 12.4 percent rate in the final three months of 2012, the fastest in more than a year.
“While we’re not forecasting a strong upswing in growth this year, we do think we’re coming off the lows based on what we see in orders so far and what we hear from customers,” Michael Larsen, chief executive officer of Gardner Denver Inc. (GDI), said during a Feb. 22 earnings call. The Wayne, Pennsylvania- based company makes compressors and pumps.
“We expect demand to remain stable in North America as the economy here appears to be improving modestly,” Larsen said. While Europe is still struggling, “China appears to be improving from the lows of last year. We believe that this moderate growth will improve throughout the year and lead to a stronger second half.”
Since the start of the fourth quarter, manufacturing shares have outpaced the broader market. The Standard & Poor’s Supercomposite Machinery Index has advanced 11.2 percent since the end of September, compared with a 3.9 percent gain in the S&P 500.
American automakers are enjoying improved demand as well. Cars and light trucks sold at a 15.2 million annual rate last month after 15.3 million in December, according to Ward’s Automotive Group. Including November’s 15.5 million rate, car sales in the past three months have been the strongest in five years.
To ensure the expansion maintains traction, Fed policy makers have pursued unprecedented monetary easing. Bernanke yesterday, testifying before the Senate Banking Committee, defended the Fed’s $85 billion a month in asset purchases and near-zero target interest rate, saying that “monetary policy is providing important support to the recovery.”
“Notably, keeping longer-term interest rates low has helped spark recovery in the housing market and led to increased sales and production of automobiles and other durable goods,” he said.
A healthier housing market could also aid the expansion. Economists forecast the National Association of Realtors may report at 10 a.m. that its index of pending home sales rose 1.8 percent in January after decreasing 4.3 percent the prior month, according to the survey median.
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