China GDP Rebounding to Match Official Data, Eaton Says

Eaton Corp. Chief Executive Officer Sandy Cutler said China’s economy is accelerating, buoyed by increases in consumer spending, bringing growth in line with the country’s public pronouncements.

China may have inflated the extent of its expansion by a factor of two in recent years, masking weakness as government infrastructure spending fell and individuals hadn’t yet picked up the slack, Cutler said yesterday. The rebound means China’s indicators are closer to giving an accurate reading, he said.

“The growth is getting back to where it’s supporting the publicly stated numbers,” Cutler, 62, said in a telephone interview. “It feels stronger to us now than it did a year ago. There’s no question.”

Eaton sells products across consumer and industrial markets, including hydraulics for construction equipment, auto parts, lighting for homes and buildings and electrical goods, giving it a wide snapshot of economic growth. The Dublin-based company does business in China across all those segments.

China’s gross domestic product is estimated to have expanded 7.7 percent last year, matching 2012’s growth, and is projected to grow 7.4 percent this year, according to economists’ estimates compiled by Bloomberg. The country’s Purchasing Managers’ Index, a manufacturing measure, dropped to 50.5 in January, the lowest level since July.

Cutler also questioned China’s economic data in an interview in February 2013, echoing complaints from economists such as Li Wei of Standard Chartered Plc in Shanghai, that the nation overstated third-quarter 2012 growth before the congress where the ruling Communist Party had its decennial transfer of power.

U.S. Construction

In the U.S., Eaton sees non-residential construction rising as much as 8 percent this year as light commercial spending, such as strip malls, increases to support growth in new housing developments. Larger projects, including office buildings and hotels, are also beginning to pick up, Cutler said. Last year private non-residential construction fell 0.4 percent.

“We’re starting to see fairly broad-based expansion in the non-residential construction area,” he said.

Eaton, which is based in Dublin and operates out of Cleveland, reported fourth-quarter earnings per share of $1.08 compared with analysts’ estimates of $1.06, helped by lower taxes. The company forecast 2014 operating earnings per share of $4.50 to $4.90, which at the midpoint is lower than analysts’ estimates of $4.89.

Eaton fell 2.3 percent to $68.65 in New York yesterday. The shares have dropped 9.8 percent this year after gaining 40 percent in 2013.

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