Durable-Goods Demand Points to U.S. Factory Pickup
By Shobhana Chandra - Jan 28, 2013 1:15 PM PT
Bookings for goods meant to last at least three years advanced 4.6 percent, exceeding the highest forecast of economists surveyed by Bloomberg, after a 0.7 percent gain in November, a Commerce Department report showed today in Washington. Other figures signaled sales of existing homes may cool, restrained by a lack of inventory.
American manufacturers from General Electric Co. (GE) to DuPont Co. (DD) are among those benefitting from a pickup in global growth that will probably keep assembly lines busy. Increasing demand for communications gear and machinery also points to gains in U.S. business spending that show company chiefs are looking beyond the federal debate on ways to trim the budget deficit.
“The global backdrop has improved,” said Peter Newland, an economist in New York for Barclays Plc. “There should be much scope for businesses to contribute to growth.”
The median forecast of 76 economists surveyed by Bloomberg called for a 2 percent advance in orders. Estimates ranged from a decrease of 1.4 percent to a 4.5 percent increase.
December capped the first four-month gain in demand for durable goods since comparable records began in 1992.
Pending home sales declined in December for the first time since August, the National Association of Realtors reported today. The index of contracts to buy previously owned homes fell 4.3 percent to 101.7 after a revised 1.6 percent increase in November.
Survey Results The median forecast in a Bloomberg survey projected no change in the gauge. Compared with a year earlier, pending sales before seasonal adjustment climbed 4.9 percent.
Stocks fell on the disappointing housing data. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,500.18 at the close in New York. The S&P Supercomposite Machinery Index, which includes Caterpillar Inc. (CAT) and Deere & Co., climbed 0.3 percent to close at an almost two-year high.
The durable goods data were boosted by a 56.4 percent surge in bookings for military aircraft, according to the Commerce Department’s report.
Excluding demand for transportation equipment, which is often volatile, orders increased 1.3 percent, also beating the median projection which called for a 0.8 percent advance.
Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications gear, increased 0.2 percent following gains of 3 percent in November and October. The advance over the past three months was the biggest since mid-2011.
Growth Impact Shipments of those goods, used in calculating gross domestic product, increased 0.3 percent after rising 2.2 percent the prior month, more than previously estimated. Sales climbed for three consecutive months, the longest stretch of gains since mid-2011.
A report on Jan. 30 will probably show GDP expanded at a 1.1 percent annual pace in the final quarter of 2012, helped by growth in consumer spending, corporate investment and housing, according to the Bloomberg survey median. Capital spending dropped at a 2.6 percent annual rate in the third quarter, the first decline in more than three years.
Automobile purchases remain a source of strength for factories. Cars and light trucks sold at a 15.3 million annual rate in December after 15.5 million the prior month, the best back-to-back showing since early 2008, according to Ward’s Automotive Group.
Auto Demand Rising demand for plastics used in autos helped DuPont, the biggest U.S. chemical maker by market value, to report fourth- quarter earnings that exceeded analysts’ estimates. The company, based in Wilmington, Delaware, also said sales in 2013 will climb to $36 billion from $34.8 billion.
“The U.S. is experiencing a weak recovery with bright spots and pent-up demand for housing and autos,” Chief Executive Officer Ellen Kullman said on a Jan. 22 earnings call.
Manufacturers are also gaining from improving overseas markets led by China, where economic growth accelerated in the fourth quarter for the first time in two years.
General Electric’s fourth-quarter profit topped analysts’ estimates as demand in emerging markets fueled the aviation and health-care divisions, which helped build a record $210 billion order backlog for the Fairfield, Connecticut-based company.
“We saw real strength in the emerging markets and the developed regions stabilized,” Chief Executive Officer Jeffrey Immelt said on a Jan. 18 conference call. GE “entered 2013 with substantial momentum” following “solid order growth in five of the six businesses,” he said.
Growing Profits Peoria, Illinois-based Caterpillar, the world’s largest maker of construction and mining equipment, today reported fourth-quarter profit that topped analysts’ estimates.
“We’re encouraged by recent improvements in economic indicators, but remain cautious,” Chief Executive Officer Doug Oberhelman said in a statement.
Businesses still face the risk that lawmakers fail to avert across-the-board government spending cuts scheduled to begin March 1, even after the fiscal pact passed by Congress on Jan. 1 avoided sweeping tax increases that had threatened to crimp consumer spending.
The report from the real-estate agents’ group signaled the housing rebound is starting to face hurdles. The NAR said a decline in the number of homes on the market is holding back sales after the best year for the industry since 2007.
Home Sales Sales of existing homes unexpectedly dropped in December, restrained by the lowest supply of properties in more than a decade, the Realtors group reported last week. Purchases fell 1 percent to a 4.94 million annual rate last month.
“The supply limitation appears to be the main factor holding back contract signings in the past month,” Lawrence Yun, the Realtors group’s chief economist, said in a statement today. “Buyer interest remains solid.”
Cheaper borrowing costs, improving property values and job gains may combine to drive gains in housing demand, a source of strength for the expansion.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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