Orders for U.S. business equipment such as machinery and electrical gear unexpectedly declined in October, a sign that recent increases in corporate investment may not persist.
Bookings for non-military capital goods excluding aircraft fell 1.3 percent for a second straight month, the Commerce Department said today in Washington. Economists projected a 1 percent gain, according to the Bloomberg survey median. Orders for all durable goods -- items meant to last at least three years -- rose 0.4 percent on a jump in demand for military aircraft.
An inconsistent pattern of investment in equipment shows companies are waiting to see if demand is sustained as global markets struggle to improve. At the same time, spending by American households will probably hold up and underpin manufacturing as the job market strengthens and gasoline prices continue to fall.
Slower overseas growth “may hurt some of our durable goods orders, because a lot of these are exportable goods,” Ray Stone, managing director at Stone & McCarthy Research Associates in Princeton, New Jersey, said before the report. At the same time, “we’re not far off” from an upward turn in capital expenditures, he said.
Bookings declined last month for metals, machines, computers and electrical equipment, today’s figures showed. Demand for motor vehicles rebounded.
The last time orders declined in consecutive months for non-military capital goods excluding aircraft, which are considered a proxy for future business investment, was April and May.
Excluding transportation equipment, which is often volatile from month to month, total bookings dropped 0.9 percent, the most this year, today’s data showed.
Demand for non-defense goods decreased 0.6 percent after a 1.2 percent slump. Orders for military aircraft surged 45.3 percent in October.
The median forecast of 79 economists surveyed by Bloomberg called for a 0.6 percent drop in total durable goods orders. September was revised to a 0.9 percent decrease, previously reported down 1.1 percent. Estimates ranged from a 3 percent decline to a 3 percent gain.
The durable goods data also reflected a 0.1 percent decrease in bookings for civilian aircraft, according to the Commerce Department’s report. Boeing Co., the Chicago-based aerospace company, said it received 46 orders last month after 122 in September.
Shipments of non-military capital goods excluding aircraft, used in calculating gross domestic product, decreased 0.4 percent in October after rising 0.4 percent the prior month, today’s report showed.
Industrial equipment spending in the second and third quarters showed the largest two-quarter annualized gain since the second half of 2011, and the second-largest since the end of 1964, data from the Commerce Department showed yesterday.
“We are seeing strength in heavy equipment for construction and manufacturing uses,” Gregg J. Mollins, chief operating officer of Los Angeles-based Reliance Steel & Aluminum Co., said at a Nov. 19 conference. “Non-residential construction demand has steadily improved throughout 2014 but remains well below its peak. We are optimistic that we will see further improvement in 2015.”
Today’s report is at odds with other surveys indicating factory activity has gained traction in recent months. The Institute for Supply Management’s manufacturing index last month matched August as the highest since March 2011.
Auto demand holding near post-recession highs is keeping assembly lines busy. Cars and light trucks sold at a 16.4 million pace in October, bringing the average so far this year to a 16.3 million rate that would be the best annual performance since 2006.
Today’s report showed orders for motor vehicles and parts climbed 0.3 percent after a 0.3 percent decrease a month earlier.
The gain last month indicates consumer spending will probably be sustained as more Americans find work. Employment has climbed by at least 200,000 for nine consecutive months, Labor Department data show. The last time that’s happened was a stretch that ended in March 1995. At this year’s pace, the increase in payrolls for 2014 would be the biggest since 1999.
The pickup in hiring this year has allowed Federal Reserve officials to end their unprecedented monthly asset purchase program and prepare for an increase next year from record-low interest rates.
The minutes of the policy makers’ October meeting, released last week, showed a wide-ranging debate over whether to retain the committee’s pledge to keep interest rates near zero for a “considerable time.” The panel ultimately adopted the suggestion from some participants to add wording emphasizing the timing on rate increases would depend on incoming economic data.
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