Durable goods orders heat up while business spending cools

• October 28, 2010
  
  

  By MARTIN CRUTSINGER
  Associated Press
  10/28/2010

  WASHINGTON – A surge in demand for commercial aircraft lifted orders for
  big-ticket manufactured goods in September, but businesses spent less on
  products that would signal expansion.

  The Commerce Department says orders for durable goods rose 3.3 percent last
  month. Overall, it was the best showing since January. But excluding
  transportation, orders fell 0.8 percent after having risen 1.9 percent in
  August.

  And spending by companies on capital goods excluding aircraft dropped 0.6
  percent after rising 4.8 percent in August. The category, which is viewed
  as a good proxy for business investment in the economy, has declined in two
  of the past three months.

  The new report suggests manufacturing is moving forward but at a slower
  pace than earlier this year.

  Factories helped boost the economy after the recession ended, filling
  orders from businesses that moved to rebuild their stockpiles after
  slashing them during the downturn. That trend has since slowed.

  “These figures suggest that the industrial recovery is nearing extinction.
  Without it, the overall economy is going to struggle,” Paul Dales, U.S.
  economist at Capital Economics, wrote in a research note.

  Sal Guatieri, a senior economist with BMO Capital Markets, said: “The next
  leg of the recovery will increasingly rest on the shoulders of consumers.”

  Business capital spending on equipment has been one of the bright spots so
  far in the recovery. It grew at double-digit annual rates since the final
  three months of last year. Businesses have purchased new computers and
  machinery to expand and modernize.

  The biggest decline in September was in orders for communications
  equipment. They fell 18.6 percent. Orders for primary metals such as steel
  dropped 0.5 percent. Orders for computers and related electronic products
  rose 2 percent, and orders for heavy machinery advanced 2 percent.

  Demand for transportation equipment jumped 15.7 percent, the best showing
  since January. It is a very volatile category that had fallen by 8.8
  percent in August.

  The gains were primarily because spending on orders for commercial aircraft
  doubled in September. That offset a 0.4 percent drop in demand for motor
  vehicles.

  The overall economy is expected to show growth of around 2 percent in the
  July-September quarter. The government will release its first look at
  economic growth for the third quarter on Friday. That gain would be only a
  small improvement from the 1.7 percent growth turned in during the
  April-June quarter.

  The concern is that the economy is growing too slowly to make much of a
  dent in an unemployment rate that is currently stuck at 9.6 percent in
  September.

  Manufacturers have been getting a boost from stronger overseas demand,
  which has helped to offset weakness in consumer spending in the U.S.

  Peoria, Ill.-based Caterpillar, the world’s largest maker of mining and
  construction equipment, reported last week that its revenue nearly doubled
  in Latin America in the third quarter, was up 55 percent in North America
  and grew 51 percent in Asia. The slowest of Caterpillar’s regions was the
  area that covered Europe, Africa and the Middle East, which saw a revenue
  gain of 31 percent.

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