Companies plan for worst, as consumers see boon

A slowdown in global growth, resulting in plunging commodity prices, is prompting U.S. companies to say the glass is half empty. American consumers see it as half full.
Orders to American factories for long-lasting equipment unexpectedly dropped 1.3 percent in September, indicating businesses worldwide are reluctant to spend on expanding output, Commerce Department data showed last week in Washington. Consumer confidence last month jumped to a seven-year high, according to figures from the Conference Board.
As markets in Europe and emerging nations cool, companies will want to see signs that sales are holding up before making expensive investments to modernize plants. As long as hiring doesn’t also wane, the lowest gasoline prices in four years and falling borrowing costs mean household sentiment will probably keep improving, laying the groundwork for gains in spending.
“We’re all wondering if businesses are spooked by what’s happening in the euro zone,” said Beth Ann Bovino, chief U.S. economist at Standard & Poor’s in New York. “The drop in oil prices, which means a drop in gas prices, means more purchasing power. That makes me happy.”
Unemployment across the 18-nation euro region has barely budged from last year’s high as companies, which had been questioning the durability of the recovery, now find themselves hitting headwinds from weakening global trade.
That may be one reason why companies worldwide are turning more cautious. September’s drop in U.S. durable-goods orders followed an 18.3 percent plunge in August and a 22.5 percent surge the prior month that reflected swings in demand for aircraft, which is often volatile.
The median forecast of 83 economists surveyed by Bloomberg projected bookings would climb 0.5 percent in September. Estimates ranged from a decline of 1.7 percent to an increase of 5 percent. Looking past the volatility in transportation equipment, the numbers remained weak. Orders for nondefense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications equipment, dropped 1.7 percent, the most since January, after a 0.3 percent gain the previous month.
Shipments of nondefense capital goods, used in calculating gross domestic product, fell 0.2 percent after rising 0.1 percent.
While last week’s Commerce Department data darkened the investment outlook, figures from the Conference Board contained better news about the consumer heading into the holiday-shopping season.
The New York-based research group’s consumer confidence index climbed to 94.5 in October, the highest since October 2007, from a September reading of 89 that was stronger than initially estimated. The gauge exceeded the most optimistic projection of economists surveyed by Bloomberg. •

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