Demand for U.S. capital goods such as machinery and communications gear dropped more in July than previously estimated, a sign manufacturing will contribute less to the economic expansion.
The 4 percent decrease in bookings for non-military capital goods excluding aircraft exceeded the 3.4 percent drop estimated last week in the durable goods report, the Commerce Department said today in Washington. It remained the biggest decline since November. A 54 percent surge in aircraft demand, which is often volatile, pushed total factory bookings up by 2.8 percent last month, the biggest gain in a year.
Companies are delaying equipment purchases and other spending amid apprehension about a package of U.S. tax increases and spending cuts that are set to take effect in January, a fiscal cliff that has overshadowed U.S. gains in consumer spending and job creation. Things are no better in Europe, where an index of executive and consumer confidence in the 17-nation euro region is at its lowest in three years.
“We’re seeing manufacturers a bit concerned,” Megan Ellis, associate economist at John Hancock Financial Services in Boston, said before today’s report. “Overall, manufacturers are very nervous about what demand will be.”
The median forecast of economists surveyed by Bloomberg projected total orders would rise 2 percent. Estimates of 61 economists polled ranged from a decline of 0.4 percent to an increase of 3.1 percent. Orders dropped 0.5 percent in June, the same as previously estimated.
Demand for durable goods rose 4.1 percent, revised from the 4.2 percent jump reported last week. Orders for non-durable items climbed 1.5 percent after falling 2.3 percent in June. Last month’s gain was paced by petroleum, clothing and tobacco.
Factory orders excluding the volatile transportation category, increased 0.7 percent in July after dropping 2.2 percent in June.
The surge in civilian aircraft bookings last month followed a 33 percent jump in June. Boeing Co., the largest U.S. aircraft maker, said it received 260 orders last month, up from 24 in June.
Bookings for capital goods excluding aircraft and military equipment is proxy for future business investment. The category has been down in four of the past five months. Shipments of those goods, which are used in calculating gross domestic product, fell 0.5 percent in July, also worse than the unchanged reading reported last week.
Manufacturing accounts for about 12 percent of the economy and has been at the forefront of the recovery that began June 2009. Cooling business investment could offer less support to the expansion in the third quarter as companies avoid incurring new costs including capital investments and new hires.
Spending on equipment and software advanced at a 4.7 percent annual rate in the second quarter, the weakest performance in almost three years and down from a 5.4 percent gain from January through March.
“There’s still a lot of uncertainty regarding the European economy, the pace of a general industrial recovery in China as well as the potential for a fiscal cliff in the United States,” said Jim Shaw, chief financial officer of Minneapolis-based Donaldson Co. Inc. (DCI:US), which manufactures filtration systems. “So we’ll continue to manage our operating expense levels cautiously in the near term,” he said in an Aug. 27 earnings call. “We’ve been cautious in managing our discretionary operating expenses, such as adding head count.”
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