Tags: Capital | Goods | Orders

Capital Goods Orders Climb More Than Previously Estimated

Monday, 04 October 2010 10:06 AM

Orders for U.S. capital goods rose in August than previously estimated, a sign companies are replacing outdated equipment. Total bookings dropped, pulled lower by a pullback in demand for aircraft.

Orders for non-military capital goods excluding planes increased 5.1 percent, the biggest gain since March and exceeding the 4.1 percent estimated last month, figures from the Commerce Department showed today in Washington. The 0.5 percent decrease in total bookings compared with a 0.4 percent drop projected by the median forecast of economists in a Bloomberg News survey.

Manufacturing will remain at the forefront of the recovery as companies use their large cash reserves to update equipment and cut costs. Federal Reserve Bank of New York President William Dudley last week said more monetary easing is probably needed to spur growth and avert deflation.

“Capital spending is clearly trending higher,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report. “You generally get a strong recovery in capital spending with a more noticeable improvement in hiring than what we’re seeing. It looks like the spring weakness was a temporary soft patch.”

The median forecast was based on a survey of 64 economists. Estimates ranged from a drop of 1 percent to a 0.3 percent increase.

Pending Sales

A report from the National Association of Realtors showed pending sales of existing homes climbed more than forecast in August. Singed contracts increased 4.3 percent after a 4.5 percent increase in July, indicating housing demand is stabilizing after reaching record lows. The median forecast of economists surveyed projected a 2.5 percent increase.

The increase in orders for capital goods excluding aircraft and military equipment, a measure of future business investment, followed a 5.3 percent drop in July. The Commerce Department’s 4.1 percent initial estimate was reported in the Sept. 24 report on durable goods.

Shipments of these goods, used in calculating gross domestic product, rose 1.7 percent.

The durable-goods report prompted economists at Morgan Stanley to raise their estimate for third-quarter growth in business investment in equipment and software to 11.5 percent from 5 percent and to boost their forecast for economic growth by a half percentage point. Business spending surged at a 25 percent rate in the second quarter, the biggest gain since 1983.

Demand for durable goods, which make up just over half of total factory demand, fell 1.5 percent. The government reported on Sept. 24 that bookings for these items decreased 1.3 percent in August.


Bookings of non-durable goods, including food, petroleum and chemicals, increased 0.3 percent, led by a gain in demand for chemicals and fertilizers.

Manufacturing expanded in September at the slowest pace in 10 months, reflecting declines in orders and production, the Institute for Supply Management reported last week.

Factory inventories climbed 0.1 percent in August, today’s report showed after a 0.9 percent increase the prior month. The figures suggest stockpile rebuilding was less of a boost to growth last quarter. Manufacturers had enough goods on hand to last 1.27 months at the current sales pace, the most since November.

The report may ease concern among Fed policy makers. “The pace of recovery in output and employment has slowed in recent months,” the Fed said Sept. 21 after its latest policy meeting. “Business spending on equipment and software is rising, though less rapidly than earlier in the year.”

Cut Forecasts

Not all companies are seeing improvement. Advanced Micro Devices Inc., the second largest maker of microprocessors, on September 23 cut its third-quarter sales forecasts, citing weaker demand for notebook computers in Europe and North America.

The announcement followed similar forecast reductions by Texas Instruments Inc. and Intel Corp., citing weaker demand.

The economy is a top issue for voters in the November congressional elections, and polls show the public is increasingly skeptical of President Barack Obama’s performance.

Last week, Obama signed legislation that will cut taxes and provide credit help for small businesses, calling it an essential step for job growth in a slow economy.

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Orders for U.S. capital goods rose in August than previously estimated, a sign companies are replacing outdated equipment. Total bookings dropped, pulled lower by a pullback in demand for aircraft.Orders for non-military capital goods excluding planes increased 5.1 percent,...
Monday, 04 October 2010 10:06 AM
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