U.S. Goods Orders Ex-Aircraft Rise by Most in Six Months

By Alex Kowalski - Oct 26, 2011 8:40 PM GMT+0700

Orders for U.S. durable goods excluding transportation equipment rose in September by the most in six months, showing manufacturing is supporting the expansion.

Demand for goods meant to last at least three years, outside of airplanes and automobiles, climbed 1.7 percent, exceeding the median forecast of economists surveyed by Bloomberg News that called for a 0.4 percent increase, figures from the Commerce Department showed today in Washington. Total bookings fell 0.8 percent, depressed by a 26 percent plunge in planes.

Expanding economies overseas and a 14 percent drop in the value of the dollar since June 2010 are propelling American exports to record levels, helping manufacturers like Caterpillar Inc. A government incentive may also be contributing to gains in business spending on equipment, like computers and machinery, giving the world’s largest economy an added boost.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who correctly forecast demand for non-transportation equipment. “We’ve got decent momentum going into the fourth quarter.”

Stocks gained after the report and as Germany’s lower house of parliament approved plans to boost the European bailout fund. The Standard & Poor’s 500 Index climbed 0.9 percent to 1,240.02 at 9:38 a.m. in New York. The yield on the benchmark 10-year note rose to 2.15 percent from 2.11 percent late yesterday.

Survey Results

The median forecast of 79 economists surveyed by Bloomberg News projected a 1 percent decrease in orders after a previously reported 0.1 percent decline in August. Estimates ranged from a drop of 2.5 percent to a gain of 1 percent.

Boeing Co., the largest U.S. aircraft maker, said it received 59 airplane orders in September, down from 127 the prior month. The drop last month followed a 25 percent gain in August.

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, climbed 2.4 percent, the most since March, after rising 0.5 percent the prior month.

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, fell 0.9 percent after a 3.1 percent gain in August that was larger than previously estimated. For the third quarter, shipments jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, indicating business investment picked up.

Machinery, Computers

Demand for machinery increased 1.8 percent, and orders for computers and related products jumped 6 percent.

A Commerce Department report tomorrow is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the third quarter, up from a 1.3 percent rate in the previous three months, according to the median forecast in a Bloomberg survey. Societe Generale’s Jones said the gain in durable goods demand may bring GDP growth for last quarter closer to 3 percent.

Today’s report also showed companies were keeping a tight rein on inventories, which may limit last quarter’s projected gain in business spending. Durable-goods stockpiles climbed 0.1 percent in September, the smallest gain since a decline in December 2009.

Other indicators have shown manufacturing, which accounts for about 12 percent of the economy, continues to grow. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August. A level greater than 50 signals expansion. Industrial production advanced in September on growing demand for automobiles and computers, according to figures from the Federal Reserve.

Caterpillar Orders

While the European debt crisis and the sluggish U.S. expansion threaten to curb demand, the potential drags on growth don’t “signal the onset of recession,” Caterpillar said in an Oct. 24 statement. The world economy will expand 3 percent in 2011 and 3.5 percent in 2012, according to the Peoria, Illinois- based company.

“Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point,” Doug Oberhelman, chairman and chief executive officer, said in a statement. Caterpillar, the world’s largest construction and mining-equipment maker, posted third- quarter profit and sales that topped analysts’ estimates as demand for shovels and drills used to dig up metals rose.

A cheaper dollar, by making American goods more competitive overseas, is helping bolster demand. IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against those of six major trading partners including the euro, yen and pound, has dropped 14 percent since June 7, 2010. July and August were the best month for U.S. exports on record, according to figures from the Commerce Department.

A rush to qualify for a larger government credit may also be contributing to an increase in businesses investment. The Obama administration’s tax compromise allows companies to depreciate 100 percent of investment in capital outlays in 2011 and 50 percent in 2012.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net