U.S. November Durable Goods Orders Climb 3.8%

By Bob Willis - Dec 23, 2011 9:32 PM GMT+0700

Orders for U.S. durable goods rose in November by the most in four months as an increase in demand for aircraft outweighed declines in spending on computers and equipment.

Bookings for equipment meant to last at least three years rose 3.8 percent after no change in prior month that was previously reported as a decline, data from the Commerce Department showed today in Washington. Demand for business equipment excluding military hardware and aircraft dropped 1.2 percent in November, the biggest decline since January.

The decrease in demand for capital goods signals manufacturers may be growing hesitant to boost investment because of political gridlock in the U.S. and Europe’s debt crisis. Support to manufacturing from a government tax incentive that allows for 100 percent depreciation on new equipment this year may be coming to an end.

“You got a big bump from Boeing orders but the drop in business investment implies a very weak manufacturing base with little traction,” said Bricklin Dwyer, an economist at BNP Paribas in New York. “Manufacturing will have a tough time regaining its footing.”

The median forecast of 80 economists surveyed by Bloomberg News projected a 2.2 percent increase in orders following an initially reported 0.5 percent decline in October. Estimates ranged from a drop of 2 percent to a gain of 7 percent.

Consumer spending rose less than forecast in November as wages declined, another report from the Commerce Department showed. Purchases rose 0.1 percent for a second month. Incomes also grew 0.1 percent, the weakest in three months, after a 0.4 percent rise in October. The November gain in income was limited by a 0.1 percent drop in wages and salaries.

Stock Futures

Stock-index futures pared gains after the report, with the contract on the Standard & Poor’s 500 Index expiring in March rising 0.4 percent to 1,254.2 at 8:40 a.m. in New York. The yield on the benchmark 10-year Treasury note climbed to 1.96 percent from 1.95 percent late yesterday.

Durable orders excluding transportation equipment, like commercial aircraft, rose 0.3 percent after a 1.5 percent gain, the report showed. Boeing Co. (BA), the largest U.S. aircraft maker, said it received 96 orders in November, up from 7 the prior month and the most since August.

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, fell after a 0.9 percent decline.

Capital Goods Sales

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, decreased 1 percent after falling 0.8 percent.

“Based on all we’re seeing and hearing, 2012 will be a more challenging economic environment,” David Anderson, chief financial officer at Honeywell International Inc., said on a Dec. 15 conference call. “On the industrial side, we’re not seeing obviously conditions getting markedly better or worse.”

The support for factory production may come from businesses rushing to qualify for a government credit aimed at spurring investment. A tax break that allows companies to depreciate 100 percent of investment in capital outlays in 2011 falls to 50 percent in 2012.

The tax break that allows companies to depreciate 100 percent of investment in capital outlays in 2011 falls to 50 percent in 2012.

The Federal Reserve’s gauge of factory output declined in November for the first time in seven months, reflecting drops in auto production that may have been hindered by flooding in Thailand that swamped auto-parts suppliers.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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