Demand for goods such as machinery and electronics climbed in October by the most in five months, signaling companies are starting to overcome concern the looming fiscal cliff will derail the U.S. economy.
Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 1.7 percent last month, the most since May, the Commerce Department reported today in Washington. Orders for all durable goods were little changed, beating the median forecast of economists surveyed by Bloomberg that projected a 0.7 percent drop.
Eaton Corp. is among companies saying customers are trying to find ways to meet rising demand even as they are concerned about the $607 billion in tax increases and spending cuts that may take effect next year if lawmakers don’t act. A rebound in business investment combined with gains in housing may point to a pickup in growth next year.
“Demand for durable goods has stabilized,” said Ryan Wang, an economist with HSBC Securities USA Inc. in New York, who forecast an increase of 0.9 percent in total orders. “It’s a positive sign.”
Stock-index futures were little changed after the report. The contract on the Standard & Poor’s 500 Index maturing in December was at 1,403.2 at 8:50 a.m. in New York, down less than 0.1 percent from yesterday’s close.
Forecasts for total durable goods of the 75 economists surveyed by Bloomberg ranged from a 4 percent drop to a 2.7 percent increase.
The Commerce Department said no companies in the durable goods survey reported that production was disrupted by superstorm Sandy.
Demand for capital goods excluding defense equipment and aircraft, including items such as computers, engines and communications gear, climbed after a revised 0.4 percent drop in September that was larger than previously forecast.
Orders for electrical equipment and appliances increased 4.1 percent, the most since August 2011, and demand for communications gear jumped 11.4 percent, the most since February. Machinery bookings climbed 2.9 percent after increasing 8 percent in September.
Conversely, shipments of those capital goods, used in calculating gross domestic product, decreased 0.4 percent in October, a fourth consecutive decline, indicating that business investment may remain weak this quarter.
Businesses cut spending in the third quarter as commercial construction projects declined, according to the Commerce Department’s figures on GDP. The purchase of equipment and software was little changed, the weakest reading in more than three years.
At Cleveland-based Eaton, an industrial equipment manufacturer, customers are putting off long-term commitments amid the uncertainty created by the fiscal deliberations, Chairman and Chief Executive Officer Alexander M. Cutler said.
“We’re seeing short-term lease activity at a very high level,” Cutler said at a Nov. 13 conference, indicating companies would rather pay more for the flexibility that renting equipment provides in the short-term than commit to taking on a large purchase over the long run. “People are paying a premium at this point to really deal with the uncertainty,” he said, even as demand is improving.
The pace of recovery, already slower than Fed policy makers had hoped, faces a “substantial threat” from the fiscal cliff, Federal Reserve Chairman Ben S. Bernanke said in a Nov. 20 speech to the Economic Club of New York. Fed policymakers have said they’ll keep interest rates close to zero until mid- 2015 to help boost growth.
“The ability of the Fed to offset headwinds is not infinite,” Bernanke said.
Other manufacturers aren’t faring as well. Deere & Co., the world’s largest agricultural equipment maker, cut its fiscal 2012 profit forecast in August after Asian and Latin American sales slowed. Last week, the Moline, Illinois-based company missed analysts’ estimates for fiscal fourth-quarter earnings after sales shrank 2 percent outside the U.S. and Canada.
“The world faces some big economic challenges today, ranging from the U.S. fiscal cliff possibilities to euro debt crisis and the slowdown in emerging-market economies,” Chief Financial Officer Rajesh Kalathur said on a Nov. 21 earnings call. “Today’s economic uncertainties are real and troubling.”