Bloomberg News

Orders for U.S. Capital Goods Rise by Most in Three Months

October 04, 2011

(Updates with markets in sixth paragraph.)

Oct. 4 (Bloomberg) -- Orders for U.S. capital equipment increased in August by the most in three months, a sign business investment and exports held up in the face of mounting concern over the European debt crisis.

Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 0.9 percent, the most since May, a Commerce Department report showed today in Washington. Demand for all factory goods declined 0.2 percent.

Faster growth in emerging economies helped sustain demand for American-made turbines and equipment even as U.S. households cut back. Federal Reserve Chairman Ben S. Bernanke said today that policy makers stand ready to take further action to propel a recovery that’s shown signs of faltering.

“Capital investment continues to grow at a slower pace and exports will continue to do reasonably well, but ultimately activity will be driven by how events unfold in Europe,” Eric Green, chief market economist at TD Securities Inc. in New York, said before the report. “Manufacturing is continuing to grow, though certainly at a much slower pace than earlier in the year.”

Economists projected no change in total factory orders after a 2.1 percent jump, according to the median forecast of 68 economists in a Bloomberg News survey. Estimates ranged from a 1 percent drop to a 2.2 percent increase.

Stocks slumped as European policy makers struggled to reassure investors they can contain the region’s debt crisis. The Standard & Poor’s 500 Index dropped 1.4 percent to 1,084.07 at 10:11 a.m. in New York.

Industrial Machinery

Industrial machinery, computers, aircraft and communications equipment bookings climbed in August, while orders for motor vehicles decreased, today’s report showed.

Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, increased after a revised 0.3 percent decrease in July.

Shipments of those items, used in calculating gross domestic product, increased 2.8 percent in August, the most in five months, after rising a revised 0.3 percent the prior month.

A report yesterday showed production gains in September, while orders contracted for a third straight month. The Institute for Supply Management’s factory gauge accelerated last month, the group said. The figures also showed a gain in export demand.

Regional Surveys

Regional figures from the Fed showed New York-region manufacturing shrank for a fourth straight month in September, while factory activity in the Philadelphia area contracted for a third time in four months.

The Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability,” Bernanke said today in testimony to Congress’s Joint Economic Committee in Washington.

Today’s report reflected a drop in orders at vehicle makers following supply disruptions caused by the earthquake in Japan in March. Bookings for motor vehicles and parts decreased 5.3 percent after the prior month’s 8.5 percent surge.

Even so, auto purchases picked up last month. General Motors Co., Chrysler Group LLC, Ford Motor Co. and Nissan Motor Co. yesterday said their sales rose more than estimated. September vehicle sales rose to an annual rate of 13 million, the fastest in five months, from 12.1 million, according to industry reports.

Commercial Aircraft

Orders for commercial airplanes jumped 24 percent in August after surging 50 percent in July. Chicago-based Boeing Co., the world’s largest aerospace company, said it received 127 orders in August, up from 115 in July.

Demand for durable goods, which make up just over half of total factory demand, fell 0.1 percent, today’s report showed.

Bookings of non-durable goods dropped 0.3 percent, reflecting a decrease in the value of petroleum products.

Factory inventories rose 0.4 percent in August, and manufacturers had enough goods on hand to last 1.34 months at the current sales pace, compared with 1.33 months in July.

Grand Rapids, Michigan-based office-equipment maker Steelcase Inc. remains optimistic on prospects for continued business spending in the U.S.

“We are not convinced a pullback in corporate spending is going to occur,” David Sylvester, chief financial officer at Steelcase, said in a Sept. 22 conference call with analysts. “Many corporate balance sheets are as strong as they have ever been.”

Overseas Sales

Overseas sales remain a source of strength for some manufacturers, including General Electric Co.

“At a time of, I would say, global volatility, we still see robust demand for our infrastructure products,” Jeffrey Immelt, chairman and chief executive officer of GE, said Sept. 26 in Pune, India. “We still feel quite good about our prospects on a global basis.”

The Fed’s policy-setting committee on Sept. 21 said economic growth “remains slow” even as “business investment in equipment and software continues to expand.”

“There are significant downside risks to the economic outlook, including strains in global financial markets,” it said.

--With assistance from Chris Middleton in Washington. Editor: Vince Golle

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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