Manufacturing in U.S. Cools as Durables Orders Slump

U.S. March Durable Goods Orders Drop 5.7%

Demand for durable goods slumped in March by the most in seven months, adding to signs manufacturing in the U.S. cooled at the end of the first quarter.
Bookings for merchandise meant to last at least three years fell 5.7 percent after a revised 4.3 percent gain the prior month that was smaller than previously estimated, the Commerce Department reported today in Washington. The less-volatile category that excludes transportation equipment unexpectedly dropped for a second month.
Companies such as Caterpillar Inc. (CAT) are feeling the pinch as customers rein in spending on equipment and inventories on concern that across-the-board federal budget cuts and slower growth overseas will restrain the world’s largest economy. At the same time, gains in housing and autos are benefiting others, including Ford Motor Co. (F), supporting a continued expansion.
“The weakness that we see developing in China, the recession in Europe and the unknown about the weight of the fiscal restraint in the U.S. from the sequester, all those increase uncertainty for business,” said Michael Carey, chief economist at Credit Agricole CIB in New York and the second-best durable-goods forecaster over the past two years, according to data compiled by Bloomberg. Companies “are probably holding back a bit.”
Most stocks rose, extending a rally in the Standard & Poor’s 500 Index to a fourth day, as companies from Boeing Co. to Apple Inc. reported earnings. The S&P 500 (SPX) climbed less than 0.1 percent to 1,579.79 at the close in New York.

Investment Forecast

While the orders data indicated business investment cooled in the first quarter after climbing at an 11.8 percent annual rate in the final three months of 2012, it is “still in a rising trend from a rare summer swoon last year,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an e-mail to clients. Spending on equipment and software dropped at a 2.6 percent rate in last year’s third quarter, the last time concern about global growth mounted.
Overseas, early figures covering the second quarter showed Europe is making little progress emerging from a recession. German business confidence declined in April for a second month after winter weather hindered the recovery in Europe’s largest economy, figures from the Ifo Institute showed today in Munich.
The median forecast of 78 economists surveyed by Bloomberg projected U.S. orders for durable goods would decline 3 percent in March. Estimates ranged from a drop of 6 percent to a 1 percent gain. The Commerce Department revised the February gain down from a previously reported 5.6 percent advance.

Broad Drop

Orders declined in March for commercial aircraft, metals, machinery and electrical equipment, today’s figures showed. Bookings advanced for automobiles, computers and communications gear.
Peoria, Illinois-based Caterpillar, the largest maker of mining equipment, cut its 2013 forecast and “significantly” lowered its outlook for demand from commodities producers. Sales in 2013 will be $57 billion to $61 billion, compared with an earlier forecast of $60 billion to $68 billion.
Capital expenditures by business remain weak, Michael DeWalt, Caterpillar’s director of investor relations, said on an April 22 earnings call. Dealers whittled down inventories, and orders for mining equipment including trucks and bulldozers fell in the first quarter.
Today’s report showed shipments of capital goods, a measure that’s used in calculating gross domestic product, climbed 0.3 percent and were up at a 4.1 percent rate in the past three months. They were up at a 5.1 percent pace in the three months to December.

Growth Projections

Economists at Morgan Stanley and JPMorgan Chase & Co. in New York lowered their first-quarter GDP tracking estimates after today’s report. JPMorgan reduced its projection to 2.9 percent from 3.1 percent, while Morgan Stanley lowered its forecast to 2.7 percent from 2.9 percent.
The Commerce Department will issue its initial estimate of first-quarter growth on April 26.
Today’s figures showed bookings for commercial aircraft, which are often volatile, declined 48.2 percent after surging 86.4 percent in February. Boeing Co. (BA), the Chicago-based aerospace company, said it received orders for 39 aircraft in March, down from 179 placed in February.
Boeing today reported profits that beat analysts’ estimates as the company delivered more profitable 777s and 737s. Revenue fell 2.5 percent to $18.9 billion because of a drop in 787 deliveries and the effect of budget cuts on Boeing’s defense business. Boeing said its commercial and defense backlog rose to a record $392 billion as it gained $20 billion of net orders during the quarter.

Motor Vehicles

Orders for automobiles increased 0.2 percent last month after a 4.7 percent jump in February, today’s durable goods report showed. Cars and light trucks sold at a 15.2 million annual rate in March after 15.3 million the prior month, according to Ward’s Automotive Group data.
Dearborn, Michigan-based Ford, the second-largest U.S. automaker, today also reported first-quarter profit that exceeded estimates as the Fusion sedan bolstered record results for its North American operations.
The company forecast it would build 800,000 vehicles in North America and 390,000 in Europe during the current quarter. That’s up 63,000 in North America and 21,000 in Europe from a year earlier. Automakers record revenue when vehicles are assembled and shipped to dealers.
Bookings for durables excluding transportation equipment decreased 1.4 percent in March after a 1.7 percent drop the prior month, today’s Commerce Department report showed. Those orders were projected to rise 0.5 percent, according to the Bloomberg survey median.
Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in equipment such as computers and communications gear, rose 0.2 percent, capping a 16.7 percent annualized increase in the first three months of the year. That compares with a 20.4 percent fourth-quarter gain and indicates business spending will keep growing.