Orders for U.S. business equipment stalled in September, capping a quarterly slump that signals investment will cool in the second half of the year.
Bookings for non-defense capital goods excluding aircraft, considered a proxy for future business spending on items such as computers, engines and communications gear, were little changed after rising 0.2 percent in August, less than previously estimated, a Commerce Department report showed today in Washington. Demand for all durable goods climbed 9.9 percent last month, exceeding the median forecast of economists surveyed by Bloomberg and reflecting a rebound in airplane orders.
Companies from Caterpillar Inc. to Advanced Micro Devices Inc. have tempered sales projections, raising the risk that cuts in business spending ahead of looming tax and government- spending changes will hold back the economy. In addition, exports to Europe and Asia are waning as global growth cools, further hindering American manufacturers.
“The undertones of this report are unquestionably weak,” said Jacob Oubina, a senior economist at RBC Capital Markets LLC in New York, who projected demand for capital equipment would stall. Economic growth “will come in softer than expected. It doesn’t bode well for fourth-quarter activity.”
The median forecast of 77 economists surveyed by Bloomberg called for a 7.5 percent gain in total durable goods orders. The August reading was revised to a 13.1 percent drop, the biggest since 2009, from a previously reported 13.2 percent decrease.
Bloomberg survey estimates for bookings ranged from gains of 0.3 percent to 14 percent.
Aircraft bookings, which are often volatile, surged 2,641 percent after plunging 97 percent in August, today’s report showed. Boeing Co., the Chicago-based aerospace company, said it received 143 orders in September, up from 1 the prior month and 260 in July.
A less volatile measure of bookings that excludes transportation equipment advanced 2 percent in September, the first gain in four months.
Excluding transportation, bookings were projected to climb 0.9 percent, according to the Bloomberg survey median.
Fewer Americans filed first-time applications for unemployment benefits last week as the seasonal volatility at the start of the quarter wound down, another report showed.
Jobless claims decreased by 23,000 to 369,000 in the week ended Oct. 20 from a revised 392,000 the prior period, the Labor Department reported today. The median forecast of 48 economists surveyed by Bloomberg called for a drop in claims to 370,000.
Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in December climbed 0.5 percent to 1,412.7 at 8:47 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.84 percent from 1.79 percent late yesterday.
Orders for non-defense capital goods excluding aircraft dropped at a 23.5 percent annual rate in the third quarter after falling at a 5.9 percent pace in the three months ended June, today’s Commerce Department report showed.
Shipments of those capital goods, used in calculating gross domestic product, decreased 0.3 percent in September from the prior month after dropping 1.2 percent in August. For the quarter, sales decreased at a 4.9 percent annual rate compared with a 5.1 percent gain from April through June, a sign businesses cut spending over the past three months.
The economy grew at a 1.9 percent annual rate in the third quarter after expanding at a 1.3 percent pace the prior three months, according to the median forecast of economists surveyed by Bloomberg ahead of Commerce Department data tomorrow. It would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.
Federal Reserve policy makers yesterday said the economy is still growing modestly and unemployment remains elevated as it maintained $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion.
The slowdown in business investment was among the things the central bank highlighted in discussing the current state of the economy.
Today’s report showed orders for computers dropped 2.5 percent in September and demand for communications gear decreased 4.5 percent after plunging 9 percent in August.
Manufacturers are acknowledging a slowdown. Advanced Micro Devices, the second-largest maker of processors for personal computers, on Oct. 18 forecast fourth-quarter sales that will miss analysts’ estimates and said it will cut staff by 15 percent. General Electric Co., Parker Hannifin Corp., and Honeywell International Inc. and among the industrial companies that have also said they’ve been hurt by weak demand.
Caterpillar, the world’s largest maker of construction and mining equipment, this week projected sales growth for 2013 that would be slower than in the previous three years as the global economy decelerates. Production across much of the company has been reduced, with temporary shutdowns and dismissals to help work through excess stockpiles, it said.
“We’re already taking actions to lower production to deal with the inventory and we’re ready to do more if we need to,” Michael DeWalt, director of investor relations at Peoria, Illinois-based Caterpillar, said on an Oct. 22 conference call. “We’re not banking on a big pickup in the economy.”
Inventories climbed 0.3 percent in September, the smallest gain in three months, after rising 0.6 percent in August, today’s report showed.
Factories may remain under pressure heading toward the more than $600 billion in tax increases and federal spending cuts that take effect early next year unless Congress acts to forestall them.
Capital spending is “substantially more sensitive to policy uncertainty shocks than other areas” of the economy, Goldman Sachs economists led by Jan Hatzius said in an Oct. 19 research note.
Some of the damage is already visible. The outlook for capital spending as measured by the monthly Philadelphia and New York Fed business surveys have fallen to levels only seen in, or just prior to, recessions in recent years, they said.