Goods Orders Probably Climbed as U.S. Manufacturing Stabilized

By: Shobhana Chandra, Bloomberg

Orders for durable goods probably climbed in December, showing U.S. manufacturing stabilized following a mid-year slump.

The 2 percent gain in bookings for goods meant to last at least three years would follow a 0.8 percent rise in November, according to the median forecast of 64 economists surveyed by Bloomberg. Orders excluding demand for transportation equipment, which is often volatile, may have advanced for a fourth consecutive month.

Improving auto sales and a rebound in housing are underpinning the economic expansion, indicating orders will keep coming in for manufacturers from General Electric (GE) to DuPont Co. (DD) Faster growth in overseas markets and an agreement in Congress to avoid automatic government-spending cuts would help lift business confidence and spur greater investment.

“Manufacturing is looking better,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Demand has been improving nicely.”

The Commerce Department will release the durable-goods data at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from a drop of 1.4 percent to a gain of 4.5 percent.

At 10 a.m., the National Association of Realtors may report its index of pending home sales rose 0.1 percent in December after increasing 1.7 percent the prior month, economists in the Bloomberg survey projected.

Aircraft bookings, which are often volatile, provided a boost to orders last month, the Commerce Department figures may show. Boeing Co. (BA), the Chicago-based aerospace company, said it received 183 orders in December, up from 124 the prior month.

Business Investment

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications gear, took a breather last month following the biggest back-to-back gain in almost two years, economists projected. Shipments of such items are used in calculating gross domestic product.

A report on Jan. 30 may show GDP expanded at a 1.2 percent annual pace in the final quarter of 2012, helped by growth in consumer spending, corporate investment and housing, according to the Bloomberg survey median. Capital spending dropped at a 2.6 percent annual rate in the third quarter, the first decline in more than three years.

Automobile purchases remain a source of strength for factories. Cars and light trucks sold at a15.3 million annual rate in December after 15.5 million the prior month, the best back-to-back showing since early 2008, according to Ward’s Automotive Group.

Plastics Demand

Rising demand for plastics used in autos helped DuPont, the biggest U.S. chemical maker by market value, to report fourth- quarter earnings that exceeded analysts’ estimates. The company, based in Wilmington, Delaware, also said sales in 2013 will climb to $36 billion from $34.8 billion.

“The U.S. is experiencing a weak recovery with bright spots and pent-up demand for housing and autos,” Chief Executive Officer Ellen Kullman said on a Jan. 22 earnings call.

Manufacturers are also gaining from improving overseas markets led by China, where economic growth accelerated in the fourth quarter for the first time in two years.

General Electric’s fourth-quarter profit topped analysts’ estimates as demand in emerging markets fueled the aviation and health-care divisions, which helped build a record $210 billion order backlog for the Fairfield, Connecticut-based company.

“We saw real strength in the emerging markets and the developed regions stabilized,” Chief Executive Officer Jeffery Immelt said on a Jan. 18 conference call. GE “entered 2013 with substantial momentum” following “solid order growth in five of the six businesses,” he said.

Machinery Shares

Investors are encouraged by the outlook. The Standard & Poor’s Supercomposite Machinery index, which includes companies like Deere & Co., has increased 11 percent since the end of November, outpacing a 6.1 percent gain in the broader S&P 500 (SPX) gauge over the same period.

Businesses still face the risk that lawmakers fail to avert across-the-board government spending cuts scheduled to begin March 1, even after the fiscal pact passed by Congress on Jan. 1 avoided sweeping tax increases that had threatened to crimp consumer spending.

 

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