Orders for U.S. Durable Goods Increase More Than Forecast

| May 24, 2013

Courtesy of Bloomberg News by Alex Kowalski:  Orders for U.S. durable goods increased more than forecast in April, pointing to gains in business investment that will help manufacturing rebound in the second half of the year.

Bookings for equipment meant to last at least three years increased 3.3 percent last month after dropping 5.9 percent in March, the Commerce Department said today in Washington. The median forecast from 78 economists surveyed by Bloomberg projected a 1.5 percent increase.

Truck manufacturingQuickening activity in the housing and auto industries may ripple throughout manufacturing, rendering the economy better able to recover from a slowdown this quarter. At the same time, government cutbacks, higher taxes on consumers and cooling exports are crimping demand, which means any acceleration will be slow to develop.

“This report is consistent with the economy continuing to recover, but just at a moderate pace,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, and the second-best forecaster of capital goods orders over the past two years, according to data compiled by Bloomberg. “We’re not getting much demand from the rest of the world, but we are getting growth domestically.”

Estimates in the Bloomberg survey of economists ranged from a drop of 5.9 percent to a gain of 4.6 percent. The Commerce Department revised the March decline from a previously reported 6.9 percent drop.

Bookings for commercial aircraft climbed 18.1 percent last month after slumping 43 percent in March, today’s report showed. Boeing Co. (BA), the Chicago-based aerospace company, said it received 51 orders last month, up from 29 in March.

Excluding the more volatile transportation equipment component, durable orders climbed 1.3 percent, the first gain in three months.

Bookings for non-defense capital goods excluding aircraft, considered a proxy for business investment in items such as computers, engines and communications gear, increased 1.2 percent after a 0.9 percent gain the prior month that was previously reported as a drop.

Housing constructionThe figures used to calculate gross domestic product this quarter were less positive, indicating business investment is cooling. Shipments of non-defense capital goods excluding aircraft dropped 1.5 percent after increasing 0.5 percent.

Gains in inventories may help offset some of the softness in capital spending this quarter, limiting the damage to growth. Stockpiles climbed 0.4 percent in April after falling 0.1 percent the prior month, according to the report.

A pickup in manufacturing would stem a recent slowdown in inventory building that has curbed activity. The Institute for Supply Management’s manufacturing index declined in March and April, falling to just above the 50 level that represents the dividing line between contraction and expansion.

The U.S. economy probably cooled in the second quarter, giving businesses a reason to reduce the amount of stockpiles they hold, according to economists surveyed by Bloomberg. The federal government has also slashed outlays under sequestration, and American earners are facing increased payroll taxes.
Second Half

In the second half of 2013, a faster expansion will probably give companies reason to spend more, supporting producers. Home construction is picking up, and automakers are boosting output.

“We see indicators which point towards strengthening economies,” Louis Chenevert, chief executive officer of United Technologies Corp. (UTX), said during an industry conference on May 21. Orders in the first quarter signal a rebound in the second half of the year, he said.

Chenevert said housing starts in the U.S. could increase 25 percent in 2013, European demand has shown signs of picking up and emerging markets have “good momentum.” Hartford, Connecticut-based United Technologies makes Carrier air conditioners, Pratt & Whitney jet engines and Otis elevators.

Category: General Update

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