Demand for U.S. capital goods rises in sign of spending gain

Business Investment

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.

Fed’s View

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.”

Bloomberg News

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