Orders for U.S. capital goods stagnate spending slumps

Sales Forecasts

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.

Fiscal Cliff

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.

Bloomberg News

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