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Gauge of U.S. business spending plans edges higher

by
Counting money
Counting money

By Jason Lange

WASHINGTON (Reuters) - A gauge of U.S. business investment plans improved in December, a sign companies were betting the economy will pick up despite fears over tighter fiscal policy.

The Commerce Department said on Monday that non-defense capital goods orders excluding aircraft, a closely watched proxy for investment plans, edged up 0.2 percent last month.

Many economists expected businesses to invest more timidly late last year because of uncertainty over government spending cuts and tax increases, which had been scheduled to kick in this month. Congress ultimately struck a last-minute deal to avoid or postpone most of the austerity measures.

Despite the uncertainty, Monday's data pointed to growing economic momentum as companies sensed improved consumer demand.

"It certainly seems to us that companies are slowly but surely expanding," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.

In a further sign of business confidence, the November reading on capital spending plans was revised higher to show a 3 percent gain, up from the 2.6 percent rise reported a month ago.

A second report showed a measure of upcoming home resales took a breather in December, declining 4.3 percent. Still, the housing sector posted a rebound last year and economists expect it will add to growth again in 2013.

The business spending data pushed down prices for U.S. government debt, though stock prices also fell.

New orders for overall durable goods - long lasting factory goods from toasters to automobiles - jumped 4.6 percent in December, beating economists expectations of a 1.8 percent gain.

The gains were broad based, with orders for machinery, cars and primary metals all increasing.

"There's a lot more confidence," said Wayne Kaufman, an analyst at John Thomas Financial in New York.

Orders for civilian aircraft surged 10.1 percent. However, they could come under pressure in coming months as Boeing deals with battery problems in its new flagship passenger plane.

The manufacturer continues to make the 787 Dreamliner jet but stopped delivering them this month.

The planes list for about $200 million each and Boeing ships about five per month, so a sustained pause in deliveries could be a slight drag on overall shipments of durable goods, which last month totaled $230.6 billion. Lost shipments could also weigh on U.S. exports.

In December, core shipments of capital goods, which factor out aircraft and defense, rose 0.3 percent.

Despite the stronger-than-expected demand at the nation's factories, economists think economic growth cooled in the fourth quarter as companies slowed the pace at which they re-stocked their shelves.

Analysts polled by Reuters expect a report on gross domestic product due on Wednesday will show the economy expanded at a mere 1.1 percent annual rate in the fourth quarter, down from a 3.1 percent rate in the previous three months.

However, Monday's report on new orders for long-lasting factory goods suggested businesses are feeling stronger demand from consumers, and are responding by buying more machines to meet that demand. TD Securities economist Millan Mulraine said capital investment likely added to economic growth in the fourth quarter.

(Additional reporting by Lucia Mutikani in Washington, and by Leah Schnurr and Ryan Vlastelica in New York; Editing by Neil Stempleman)

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