The outlook for U.S. business spending is improving as rising earnings, easier credit and pent-up demand prompt companies from Warren Buffett’s Berkshire Hathaway Inc. to Chrysler Group LLC and Lowe’s Cos. to expand.
Orders for non-military capital goods excluding aircraft, considered a proxy for future business spending on equipment and software, climbed 7.2% in January from the prior month, the biggest gain since September 2004, revised data from the Commerce Department showed today. They’re up 9.8% since November, the most for a three-month period since 1993.
Auto sales and the rebound in housing are driving gains in consumer spending, spurring companies including Chrysler and Lowe’s to update operations, hire staff or add stores. The biggest surge in profits since the 1990s, combined with near record-low interest rates, mean firms have the resources to soften the damage to the economy from federal budget cutbacks.
“The fundamentals that drive investment activity are improving rapidly,” said Diane Swonk, chief economist for Mesirow Financial Inc. in Chicago, which oversees about $67.5 billion in assets. “You really do have all this pent-up demand and catch-up activity.”
Stocks advanced, extending a record high for the Dow Jones Industrial Average, after a private jobs report showed companies took on more workers than estimated in February. The Dow climbed 0.3% to 14,296.3 at 10:43 a.m. in New York.
The ADP Research Institute said businesses added 198,000 employees in February after a revised 215,000 gain in the prior month that was more than initially estimated.
Elsewhere, euro-area exports fell in the fourth quarter for the first time in more than three years. Shipments from the euro area dropped 0.9% in the last three months of 2012, helping to drive gross domestic product down 0.6%, the European Union’s statistics office in Luxembourg said today.
Business investment was one of the bright spots last quarter that helped the world’s largest economy overcome the biggest drop in federal military outlays since the final years of the Vietnam War era. Spending on equipment and software rose at an 11.3% annualized rate from October through December, the best performance in more than a year.
Today’s report on factory orders indicated it will be difficult to match that gain in the first three months of this year. Shipments of capital goods excluding defense and aircraft, a measure used in calculating gross domestic product fell 1.1% in January after rising 0.1% the prior month.