Bloomberg News

Durable Goods Orders in U.S. Unexpectedly Increase

May 27, 2014

Durable goods

A shopper at a Lowe's store in Cranberry Township, Pennsylvania. Photographer: Gene J. Puskar/AP Photo

Orders for long-lasting goods such as appliances and metals unexpectedly rose in April after a gain the prior month that was stronger than previously estimated, indicating U.S. manufacturing is rebounding with the economy.

Bookings for durable goods meant to last at least three years increased 0.8 percent after a revised March advance of 3.6 percent gain that was the strongest since November, Commerce Department figures showed today in Washington. Orders for military hardware surged the most since December 2012.

The value of business equipment sales excluding aircraft and defense materials held above the first-quarter average, signaling capital spending is emerging from a slump earlier this year. Another report showing the second-strongest level of consumer confidence since 2008 indicated employment opportunities will keep underpinning household purchases.

“Capital goods shipments are clearly showing more strength,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, who projected gains in both goods orders and sentiment. “There’s solid growth in manufacturing. Consumer confidence looks reasonably firm. That’s consistent with the improving labor market.”

The Conference Board in New York said its measure of confidence advanced to 83 in May from 81.7 a month earlier as Americans grew more upbeat about the economy and employment.

The Standard & Poor’s 500 Index climbed to an all-time high after the data boosted optimism in the world’s largest economy. The S&P 500 advanced 0.6 percent to 1,911.91 at the close in New York.

Capital Spending

The Commerce Department figures showed orders for non-defense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications gear, decreased 1.2 percent after a 4.7 percent surge the previous month that was the strongest since November.

Shipments of those goods, used in calculating gross domestic product, fell 0.4 percent after rising 2.1 percent, also more than previously estimated.

The value of capital goods shipments excluding military hardware and commercial aircraft was $68.1 billion in April, up from a $67.3 billion average from January-March, indicating companies are starting to invest after a first-quarter lull.

“We’re looking at a nice upward trend for orders,” said Robert Brusca, president of Fact & Opinion Economics in New York, who projected a 1 percent gain in durables orders. “The signals for manufacturing are pretty good. It’s going to be an important contributor to growth.”

First Quarter

Business investment fell at a 2.8 percent rate last quarter, the weakest result since the fourth quarter of 2009, reflecting a 5.5 percent plunge in equipment spending. Economic growth is projected to accelerate to a 3.5 percent annualized rate this quarter after stagnating in the first three months of the year, according to the median estimate in a Bloomberg survey of economists.

Cisco Systems Inc. (CSCO:US) is among those companies experiencing stronger demand. San Jose, California-based Cisco reported third-quarter sales and profit that topped analysts’ estimates as rising data traffic from smartphones and tablets fueled demand for networking equipment while the company cut costs.

Today’s Commerce Department report showed orders for fabricated metals, computers and electrical equipment increased in April. Demand eased for machinery and communications gear after advancing the previous month.

The median forecast of 68 economists surveyed by Bloomberg called for a 0.7 percent drop in durable goods orders. Estimates ranged from a decline of 4.3 percent to a gain of 2 percent after a previously reported 2.5 percent increase in March.

Consumer Sentiment

The Conference Board’s survey of consumers showed higher stock prices and home values are keeping Americans sanguine about the outlook.

The Conference Board’s gauge of present conditions rose to 80.4 after 78.5 in April. The barometer of consumer expectations for the next six months advanced to 84.8 from 83.9 a month earlier.

“Expectations regarding the short-term outlook for the economy, jobs and personal finances were also more upbeat,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.

The share of respondents who said they expected their incomes to rise climbed to 18.3 percent in May, the highest since the end of 2007, from 16.8 percent a month earlier. More also expected their incomes to decline. The proportion of Americans who said jobs would become more plentiful in the next six months rose to 15.4 percent, the highest this year, from 14.7 percent.

Home Prices

Another report today showed U.S. home prices in the first quarter increased 10.3 percent from the same three months last year. That’s down from an 11.4 percent year-over-year gain in the fourth quarter, which was the biggest since January-March 2006.

In March, home prices in 20 U.S. cities rose 12.4 percent from the same month last year, the smallest 12-month gain since July, the group from New York reported. Still-tight lending standards for some Americans and a rise in mortgage rates since mid-2013 have slowed demand, limiting the ability of sellers to keep asking even higher prices.

“The upward trajectory of prices remains in place, but with a slower rate of appreciation,” said Michael Gapen, senior U.S. economist at Barclays Plc in New York, whose projection for a 12 percent rise was among the closest in the Bloomberg survey. “There’s still reason to suspect that home prices will rise -- credit availability, on the margin, is actually getting better,” labor market progress is gaining strength and average income is improving, he said.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net; Vince Golle, Brendan Murray


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