Orders for capital equipment in US climb for second month

MAY 26, 20159:16 PM

[WASHINGTON] Orders for capital equipment rose in April for a second straight month, a sign US business investment could pick up in the second half of the year.

Bookings for non-military capital goods excluding aircraft, a proxy for future corporate spending on new equipment, advanced 1 per cent after a 1.5 per cent gain in March that was larger than previously estimated, data from the Commerce Department showed Tuesday in Washington. Total durable goods demand declined 0.5 per cent, as forecast.

Oil and mining companies are counting on a reprieve as crude prices rebound from the rout that pummeled business activity, while the strong dollar continues to undermine exports of American-made goods to overseas markets. Domestic demand should keep factories churning out goods such as cars, as the labor market proves hardy.

"The pick-up continues," Paul Ashworth, chief US economist at Capital Economics in Toronto, said in a note before the report. "This would be another sign that the weakness of the economy during the winter is coming to an end."

The drop in demand for total durable goods, which are meant to last three years or more, followed a 5.1 per cent jump in March that was the biggest since July and greater than previously reported.

The median forecast of 73 economists surveyed by Bloomberg called for orders to fall 0.5 per cent. Estimates ranged from a drop of 2.8 per cent to a gain of 3.5 per cent.

Shipments for non-defense capital goods excluding aircraft, which is used in calculating gross domestic product, rose 0.8 per cent after increasing 1 per cent.

Americans' appetite for new cars has been the prize for factories. Orders for automobiles climbed 0.3 per cent last month after a 4.2 per cent gain in March. General Motors Co. is among automakers with plans to invest. The Detroit-based company said it will spend $439 million to build a new paint shop at its Corvette sports car plant in Bowling Green, Kentucky.

The investment, which is part of a plan to spend $5.4 billion on US factories, includes a 450,000-square-foot paint facility, almost half the size of the current assembly plant, GM said in a statement May 21.

Cars and light trucks sold at a 16.5 million annualized rate in April following a 17.1 million the previous month, according to Ward's Automotive Group. That still exceeded the 16.4 million average in 2014.

Bookings for non-military aircraft, which can be volatile, fell, the Commerce Department's report showed. American Airlines, the world's largest carrier, said in April that it will delay delivery of five Boeing Co 787 Dreamliners that had been due to arrive next year, a step to curb growth in its long- haul fleet and maintain pricing power.

"Our bias will certainly be to the downside" on expanding seating capacity as the number of industrywide seats outstrips demand, President Scott Kirby said on an April 24 conference call. The deferral reflects knock-on effects of the strong US dollar, foreign competition, and economic weakness overseas that are encumbering the US airline industry.

Excluding transportation equipment, orders increased 0.5 per cent after a 0.6 per cent advance a month earlier. They were projected to rise 0.3 per cent, according to the Bloomberg survey median.

Among the bright spots in Tuesday report was demand for machinery, which climbed in April for the first time in three months. Cutbacks in drilling and mining equipment had been a drag on orders.

Oil rebounded from a six-year low in March amid speculation a cut in the number of US drilling rigs would curb output. Still, domestic crude supplies remain near the highest level in 85 years.

As oil climbs, energy companies like San Antonio, Texas- based Abraxas Petroleum Corp expect greater capacity utilization.

"With this little uptick in oil price I think you're going to see people accelerate the completion of the drilled and uncompleted wells," Robert Watson, chief executive officer of the oil exploration and production company, said on a May 7 conference call. "That's going to tie up some of the capacity."

Carrizo Oil & Gas Inc, Devon Energy Corp and Chesapeake Energy Corp all lifted their full-year production outlooks in May, signaling that they think the worst of the oil rout is behind them.

Slack business investment was among reasons the economy weakened at the start of 2015. A report Friday is projected to show gross domestic product shrank at an 0.9 per cent annualized rate in the first quarter, compared with the previously reported 0.2 per cent gain, according to the median forecast of economists surveyed by Bloomberg.

Demand for US goods overseas remains soft, as the US dollar gained against global currencies. Sales of American-made products to foreign customers climbed in March for the first time in five months as a labor dispute at West Coast ports was resolved.

With Tuesday's report the Commerce Department issued benchmark revisions going back to 1997.

BLOOMBERG