Orders for U.S. Durable Goods Unexpectedly Slump

Orders for long-lasting equipment unexpectedly slumped in December by the most in five months, indicating companies are less sure than households that the U.S. economy is strengthening,

Bookings for durable goods meant to last at least three years dropped 4.3 percent, exceeding even the weakest forecast of 82 economists surveyed by Bloomberg, according to Commerce Department data issued today in Washington. Another report showed consumer confidence improved this month.

Business leaders are “being extraordinarily cautious,” said Drew Matus, deputy U.S. chief economist at UBS Securities LLC in Stamford, Connecticut. “That is the biggest roadblock right now” to spending on new equipment, he said.

The figures on orders were at odds with previous reports showing factories were contributing to economic growth at the end of 2013 and into this year as companies geared up to meet more demand. The sentiment data showed the share of Americans viewing business conditions as good was the highest in more than six years, helping households turn more optimistic on jobs.

“Most of the data suggests things are improving,” Matus added. “The consumer confidence data suggests that. Consumers are seeing a world that’s better.”

Stocks rose, with the Standard & Poor’s 500 Index rebounding from its worst slump since June, as earnings at companies from Pfizer Inc. to D.R. Horton Inc. topped estimates. The S&P 500 climbed 0.6 percent to 1,792.5 at the close in New York.

Global Growth

Some economies overseas are showing signs of improvement. In the U.K., gross domestic product rose 0.7 percent in the fourth quarter, ending the best year since 2007, figures from the Office for National Statistics showed today in London. Business services and finance contributed more than half the gain in the final three months of 2013. The country’s economy grew 1.9 percent last year.

The U.S. data come as Federal Reserve officials meet today and tomorrow to determine whether to continue trimming stimulus. The central bank reduced monthly bond buying to $75 billion this month from $85 billion in part due to improvement in the labor market.

Economists surveyed by Bloomberg project policy makers will cut purchases by an additional $10 billion to $65 billion at the conclusion of this meeting.

Fed Outlook

“We don’t think that the disappointing data today will affect the Fed’s decision making,” said Dana Saporta, an economist at Credit Suisse Securities USA in New York. She said the weak data will bolster the central bank’s credibility when it says it will keep interest rates low for the foreseeable future. “It’s not difficult to believe the Fed intends to remain very accommodative for a long time.”

Confidence among U.S. consumers climbed to a five-month high in January as optimism about the economy and labor market improved, figures from the New York-based Conference Board showed. The private research group’s sentiment index advanced to 80.7 from 77.5 in December. The median forecast in a Bloomberg survey of economists called for a reading of 78.

Consumers’ views on present conditions were the strongest in almost six years and expectations for the next six months climbed to a four-month high. The difference between those who said jobs were hard to get and those saying employment was plentiful, while still negative, was the smallest since September 2008.

Consumer Spending

“One would expect an acceleration in spending momentum going into 2014,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, who projected a confidence reading of 80.2. “You’d probably want to see these numbers being sustained over the next few months for you to believe that it will be reflected in spending habits.”

Other data today showed an improving housing market is probably contributing to the firming outlook. Home prices in 20 U.S. cities rose in November by the most since February 2006. The S&P/Case-Shiller index of property prices climbed 13.7 percent from November 2012 after a 13.6 percent increase in the year ended in October.

“One of the reasons consumer spending has looked better is because household balance sheets are appearing to be healthier, and an important part of that is that home values are going up,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and the most accurate forecaster of home prices over the past two years, according to data compiled by Bloomberg.

Survey Results

The median estimate of economists surveyed by Bloomberg called for a 1.8 percent advance in orders for durable goods. Forecasts ranged from a 1.2 percent drop to an increase of 10 percent. The gain in November was revised down to 2.6 percent from a previously reported 3.4 percent advance.

“Clearly this is a weak report to cap off what was kind of a weak year for business investment,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who projected orders would decline. “We will see better business investment in 2014” as pent-up demand boosts business confidence and spending, Hoffman said.

Other figures have been more upbeat. Factories churned out more cars and appliances in December to cap the strongest quarterly gain in industrial production since 2010, figures from the Fed showed earlier this month. Reports from regional central banks showed manufacturing picked up in the Philadelphia and New York regions this month.

Today’s durable goods report is one of the last bits of data that economists will use to finalize growth projections. The decline in demand and revisions to previous months prompted some to lower estimates for fourth-quarter business investment. That was more than offset by a jump in inventories which contributed to growth in the last three months of 2013.

GDP Forecast

The world’s largest economy grew at a 3.2 percent annualized rate in the fourth quarter following a 4.1 percent gain in the previous three months, according to the median forecast of economists surveyed by Bloomberg ahead of a Commerce Department report on Jan. 30. It would complete the strongest six months in almost two years.

Honeywell International Inc., whose product line spans aviation controls to thermostats, posted a fourth-quarter profit that beat analysts’ estimates as sales of energy-related products and turbochargers increased.

The Morris Township, New Jersey-based company’s defense business “continues to be impacted by planned program ramp downs and delays in the U.S.,” Chief Financial Officer David Anderson said on a Jan. 24 conference call. Looking ahead, the backlog for defense was up “significantly” last year, Anderson said, “a positive sign as we look forward to the next five years.”

Purchases of durable goods such as automobiles, furniture and appliances have been a consumer spending bright spot as Americans replace the oldest household goods since the 1960s. Continued momentum in household durable-goods demand would provide a lift to U.S. growth in 2014.

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