Tags: orders | durable goods | spending

Orders for Capital Goods Drop in Sign of Spending Slowdown

Wednesday, 26 March 2014 08:47 AM

Orders for U.S. business equipment fell in February for the second time in three months, signaling corporate investment will be slow to gain momentum following an unusually harsh winter that put a damper on demand.

Bookings for non-military capital goods excluding aircraft fell 1.3 percent after a 0.8 percent gain in January that was smaller than initially reported, data from the Commerce Department showed in Washington. Demand for all durable goods — items meant to last at least three years — climbed a more-than-forecast 2.2 percent, reflecting the biggest gain in automobile demand in a year.

Frigid temperatures and snow across much of the country have muddied the outlook on the U.S. economy by restraining the housing rebound and consumer spending. That means companies will need to see additional proof that the recovery will accelerate in 2014 before expanding operations.

“We’re fairly convinced the soft patch we’re seeing is temporary,” Doug Handler, chief U.S. economist at Lexington, Massachusetts-based IHS Global Insight, said before the report. “We still have a crummy quarter to get through.”

Forecasts for durable goods orders in the Bloomberg survey ranged from an increase of 3 percent to a 1.5 percent drop. January’s figure was revised to show a 1.3 percent drop from a previously reported 1 percent decline.

Excluding transportation equipment, where demand often is volatile month to month, orders increased 0.2 percent after a 0.9 percent gain in January.

Capital Goods

Bookings for non-military capital goods excluding aircraft are considered a proxy for future business investment. Last month’s drop was led be declining demand for machinery, communications equipment and computers.

Shipments of such goods, used in calculating gross domestic product, climbed 0.5 percent in February after a 1.4 percent drop the prior month that was larger than previously estimated.

Cleveland-based Parker-Hannifin Corp., a maker of gears, pumps and values, is among companies seeing steady, if unspectacular, gains in demand.

‘We’re growing very well in the Asia-Pacific region right now, slow and steady in the U.S., slow and steady in Europe,” Jon Marten, its chief financial officer said at a March 18 investor conference. “This is a coming out of a recession like there’s no period that we can really compare this to in the past. This is something that has been just a slow steady grind.”

One bright spot in today’s report was demand for autos. Orders for motor vehicles and parts climbed 3.6 percent in February, the biggest gain since the same month last year.

Pent-Up Demand

Pent-up demand has boosted sales of cars, appliances, electronics and other equipment. The average age of cars on the road is at a record 11.4 years, according to data from IHS Automotive. Low interest rates and increasing consumer confidence also are helping dealerships and manufacturers.

Americans also are replacing the oldest household goods since the 1960s, with Atlanta-based Home Depot Inc. and Lowe’s Cos. reporting increasing home renovations as property values continue to rise.

“People are more interested in investing in their home if they think they can get that investment back,” Home Depot Chief Executive Officer Francis Blake said at a March 19 retail conference. “We have, obviously, a strong stake in the continuing recovery of the housing market.”

Lowe’s, based in Mooresville, North Carolina, is rolling out new displays for outdoor furniture and preparing for warm weather to draw shoppers to the home improvement chain, Chief Merchandising Officer Michael Jones said.

‘Feeling Good’

“Consumers are actually feeling good about home values and they are feeling good about their ability to do some of those key projects that have been getting pent up over the last few years,” Jones said at the retail conference. “We also feel pretty comfortable that some of the weather impacts from early in this quarter will flow through into some repair work.”

The durables data offer economists a final opportunity to revise fourth-quarter growth forecasts before a report from the Commerce Department.

The U.S. economy grew at a 2.7 percent annualized rate in the fourth quarter, according to the median forecast of economists surveyed by Bloomberg ahead of Thursday's GDP report.

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Orders for U.S. business equipment fell in February for the second time in three months, signaling corporate investment will be slow to gain momentum following an unusually harsh winter that put a damper on demand.Bookings for non-military capital goods excluding aircraft...
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Wednesday, 26 March 2014 08:47 AM
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