Business investment rising

Orders for U.S. business equipment climbed more than forecast in August, indicating corporate investment will help spur economic growth.

A 0.6 percent advance in bookings for non-military capital goods excluding aircraft followed a 0.2 percent decrease in July that was smaller than previously estimated, data from the Commerce Department showed today in Washington. Demand for all durable goods -- items meant to last at least three years -- slumped a record 18.2 percent as commercial aircraft orders dropped after surging a month earlier.

The increase in capital goods orders, combined with gains in employment, shows improving sales are giving companies the confidence to expand. Paced by growing demand for automobiles and housing, assembly lines will probably stay busy and help fuel the economy in the second half of the year.

“Things are heading higher for manufacturing and for the economy,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, said before the report. “Orders are picking up. More businesses are starting to replace equipment.”

The median forecast in a Bloomberg survey called for a 0.4 percent gain in non-defense capital goods excluding aircraft after a previously reported 0.7 percent decline in July.

Another report today showed fewer Americans than forecast filed for unemployment benefits last week. Initial jobless claims rose by 12,000 to 293,000 in the period ended Sept. 20, the Labor Department said in Washington. The median estimate called for 296,000 claims.

Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index (CME:SPU14) maturing in December fell 0.1 percent to 1,988.2 at 8:34 a.m. in New York.

Broad Gains
Factories last month received more orders for fabricated metals, machinery, communications equipment, appliances and electrical components, today’s durables report showed.

The median projection of 80 economists was for an 18 percent drop in orders for all durable goods. Estimates ranged from declines of 10 percent to 22 percent after a previously reported 22.6 percent jump in July. Last month’s decrease was the largest in comparable data back to 1992.

Overall durable goods were depressed by a 74.3 percent decrease in bookings for civilian aircraft, according to the Commerce Department’s report. In July, those orders surged almost 316 percent. Boeing Co., the Chicago-based aerospace company, said it received 107 orders in August, following 324 in July.

While demand for automobiles declined 6.4 percent in August, the most this year, it followed a 10 percent surge a month earlier. Bookings are up 4.6 percent so far in 2014 compared with the same period last year.

Car Sales
Vehicle purchases remain a source of strength for manufacturing and the economy. Sales of cars and light trucks rose to a 17.5 million annualized rate in August, the highest since January 2006, from a 16.4 million pace a month earlier, according to data from Ward’s Automotive Group.

Chrysler Group LLC reported its best August in 12 years for U.S. vehicle deliveries, while Ford Motor Co., Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. also posted results that surpassed analysts’ projections.

“The recent economic indicators remain very favorable and consistent with our expectations for growth,” Emily Kolinski Morris, senior U.S. economist at Dearborn, Michigan-based Ford, said on a Sept. 3 conference call with analysts. Improving employment and robust manufacturing activity are among developments that “should provide positive momentum for the economy as we continue in the second half,” she said.

Minus Transportation
Excluding transportation equipment, durables orders were up 0.7 percent after a 0.5 percent decrease a month earlier. They were projected to rise 0.6 percent, according to the Bloomberg survey median.

Shipments of non-defense capital goods, used in calculating gross domestic product, advanced 0.1 percent after rising 1.9 percent, more than previously estimated.

Other data show factory activity has gained traction. The Institute for Supply Management’s factory index climbed in August to the highest level since March 2011, the Tempe, Arizona-based group reported on Sept. 2.

“We think that both world growth and U.S. growth is, I would characterize, modest,” Richard Fearon, chief financial officer at Eaton Corp., which makes electrical equipment for buildings and hydraulics for machinery, said at a Sept. 15 conference. In the U.S., there’s been “a very, very subdued recovery, and we think that the growth has picked up some and we agree that second-half growth is probably in the 2.5 percent to 3 percent range.”

At the same time, weaker overseas markets are taking a toll on some U.S. manufacturers. Terex Corp., a Westport, Connecticut-based maker of construction equipment, cut its full- year forecast citing weakness in the crane market, in part due to weak overseas demand. Its order rate for cranes “has dropped significantly in July and August,” Terex said in a statement this month.

About the Author