Friday 19 January 2018

US companies betting economy will pick up – report

Jason Lange

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 0.2pc 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 3pc gain, up from the 2.6pc rise reported a month ago.

A second report showed a measure of upcoming home resales took a breather in December, declining 4.3pc. 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, while giving the dollar a lift against the yen. But stock prices opened lower.

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 1.8pc 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 surged for civilian aircraft and military goods, although those two categories tend to be quite volatile.

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 1.1pc annual rate in the fourth quarter, down from a 3.1pc 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.

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