AP News

Ahead of the Bell: US Durable Goods

WASHINGTON (AP) — U.S. orders for machinery and other long-lasting goods that signal investment plans surged in January. The gain showed businesses remained confident in the economy, even after taxes increased and government spending cuts loomed.

A report Tuesday will provide a better picture of whether that trend continued in February.

Economists forecast that total orders for durable goods rose 3.7 percent in February, according to a survey by FactSet. That largely reflects a rebound in volatile demand for aircraft and defense orders, both of which fell sharply in January and dragged total orders down 4.9 percent.

The Commerce Department will release the report at 8:30 a.m. EDT Tuesday.

Economists pay closer attention to orders for so-called core capital goods, which include machinery and equipment. Those orders provide a more consistent measure of business plans to expand and modernize their operations.

In January, core capital goods rose 7.2 percent. It was the biggest month-over-month gain in more than a year. Some economists are predicting that orders cooled off in February after the big January gain.

Still, business investment plans have held up in recent months despite the uncertainty surrounding tax and spending policies. Core capital goods orders dipped in December but posted strong gains in November and October.

The increases support other data that point to a recovery for U.S. manufacturing this year after a tough year in 2012.

The Institute for Supply Management reported that its index of manufacturing activity grew in February at the fastest pace since June 2011, bolstered by increases in orders and production. It was the third straight month of growth in this index.

The big increase in manufacturing activity in the ISM survey along with other signs of recent strength have prompted analysts to boost their forecast for overall economic growth this quarter.

Many analysts expect growth to expand at an annual rate of 2 percent to 2.5 percent in the January-March period, up significantly from an anemic 0.1 percent rise in the October-December quarter.

The strength in investment was one bright spot in the final three months of last year when spending on equipment and software rose at an annual rate of 11.3 percent.

The big jump in business investment orders in January came even as taxes rose and automatic government spending cuts loomed. Nearly all Americans who draw a paycheck began paying higher Social Security taxes on Jan. 1 while income taxes rose for the highest earning workers. And $85 billion in automatic spending cuts went into effect on March 1, reductions that will mean furloughs and other cutbacks for many government agencies.

The Congressional Budget Office has estimated that the combination of higher taxes and spending cuts will trim overall economic growth by 1.5 percentage point this year. The CBO is estimating the economy will grow 1.5 percent in 2013.

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