Durable-goods orders rise

Report indicates manufacturing is edging forward

A flashing red light indicates that electrical power is connected to a Boeing 737 being assembled Tuesday at the company’s plant in Renton, Wash.
A flashing red light indicates that electrical power is connected to a Boeing 737 being assembled Tuesday at the company’s plant in Renton, Wash.

— 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.

Orders for durable goods rose 3.3 percent last month, the Commerce Department said Wednesday. 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 that 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.

“We’re looking at weakness in capital spending for at least the next couple of quarters,” said Tom Porcelli, senior economist at RBC Capital Markets Corp. in New York. “Companies are unwilling to deploy the enormous amount of cash they have as there’s skepticism about the economic backdrop.We continue to exist in a slow growth environment.”

Demand for transportation equipment jumped 15.7 percent, the best showing since January. It is a 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 about 2 percent in the July-September quarter. The government will release its first look at economic growth for the third quarter 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 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 quarterly earnings showed another gain. The company said it earned $792 million in the third quarter, a gain of 96 percent compared with the third quarter in 2009, a period when sales were depressed as the global economy struggled to emerge from a recession.

Caterpillar, which has a grader plant in North Little Rock, said its revenue nearly doubled in Latin America in the third quarter, rising 55 percent in North America and 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.

Information for this article was contributed by Shobhana Chandra and Bob Willis of Bloomberg News.

Business, Pages 27 on 10/28/2010

Upcoming Events