Machinery order gains show U.S. companies to grow

Orders for U.S. durable goods excluding transportation equipment climbed in January by the most in a year, showing companies are planning to expand capacity.
Bookings for items meant to last at least three years, minus things such as aircraft, climbed 1.9 percent, exceeding all forecasts of economists surveyed by Bloomberg and the biggest gain since December 2011, according to data from the Commerce Department issued last week in Washington. Another report showed pending sales of existing homes jumped more than forecast.
Demand for machinery such as construction equipment and generators jumped by the most in more than two years in January, indicating companies were relieved the U.S. avoided the brunt of the so-called fiscal cliff of tax increases and budget cuts slated to take effect at the start of the year. Growing demand from abroad will probably supplement gains in investment to ensure manufacturing keeps contributing to economic growth.
“We expect the economy to perform better in the second half of the year and firms are gearing up for that,” said Michael Carey, chief economist at Credit Agricole CIB in New York. “Plus, it’s a good time to make capital expenditures since interest rates are so low.” Carey is the best forecaster of durable goods excluding transportation for the past two years, according to data compiled by Bloomberg.
Capital goods orders excluding defense and aircraft jumped 6.3 percent in January, the most since December 2011, last week’s report showed. They are considered a proxy for future business investment in items such as computers, engines and communications gear. They have climbed 9.5 percent since October, the biggest three-month gain since 1993. Machinery bookings surged 13.5 percent in January from the prior month, the most since May 2010.
“While we’re not forecasting a strong upswing in growth this year, we do think we’re coming off the lows based on what we see in orders so far and what we hear from customers,” Michael Larsen, chief executive officer of Gardner Denver Inc., said during a Feb. 22 earnings call. The Wayne, Penn.- based company makes compressors and pumps.
Part of the improving prospects reflects stabilization in Europe. Economic confidence in the euro area increased more than economists forecast in February, adding to signs that the 17-nation currency bloc may be emerging from a recession, data from the European Commission in Brussels showed.
Total orders for durable goods slumped 5.2 percent in January, the first decline since August, last week’s Commerce Department report showed. The median forecast of 78 economists surveyed by Bloomberg projected a 4.8 percent decrease.
Estimates ranged from a decline of 8.3 percent to a gain of 3 percent. January’s drop followed a 3.7 percent gain in December that was initially reported as 4.3 percent.
The total was held back by a 69.5 percent slump in defense bookings, the biggest drop since July 2000. Demand for military aircraft and parts slumped 63.8 percent following a 58.5 percent surge the prior month. •

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