US companies in October increased their orders of machinery and equipment that signal investment plans by the largest amount in five months, a hopeful sign for future economic growth.
Orders for core capital goods, considered a proxy for business investment, rose 1.7% in October, the best showing since a 2.3% rise in May, the Commerce Department said today.
Orders in this category had slowed beginning in the spring, acting as a drag on overall economic growth.
Total orders for durable goods were unchanged in October at $216.9 billion after a 9.2% jump in September that had been driven by a surge in demand for commercial aircraft.
In October, demand for machinery, primary metals and communications equipment increased while orders for cars, airplanes and computers fell.
Many businesses in the US had been holding back because they are worried about tax increases and federal spending cuts - known as the "fiscal cliff" - that will take effect in January unless Congress reaches a budget deal before then.
Most economists predict the economy will suffer a recession in the first half of 2013 if lawmakers and President Barack Obama can not avoid the fiscal cliff.
Economists called the rebound in orders in the business investment category ''encouraging'' but cautioned that business will remain cautious until Congress and the Obama administration reach a budget deal to avert the fiscal cliff.
White House economists yesterday warned that the uncertainty of a potential hike in taxes next year for middle class taxpayers could hurt consumer confidence and spending during the crucial holiday shopping season.
Businesses have also grown more cautious because Europe's financial crisis has pushed many countries in the region into recession. That has cut into US exports and corporate profits. Growth has also slowed in China, Brazil and other big developing nations which are major markets for American exports.
US factory activity grew in October for a second month in a row, according to the Institute for Supply Management closely watched manufacturing survey. But regional surveys indicated manufacturing shrank this month in the Philadelphia and New York regions, partly reflecting damage from Superstorm Sandy that disrupted area factories.
The storm may have also weighed on durable goods orders in October, although most economists expect the storm's impact to fade in the coming weeks. The US economy is expanding at a modest pace.
Many economists now predict growth at an annual rate of roughly 3% in the July-September quarter, up from the initial estimate of 2% reported last month. The government releases its second estimate for third-quarter growth on November 29.
Many economists say the economy is growing in the current October-December quarter at an annual rate below 2%. That is too slow to make much of a dent in the unemployment rate, which was 7.9% last month.
Today's figures show that orders for transportation equipment were down 3.1% in October, reflecting a 1.6% fall in demand for cars and car parts and a 5.5% drop in commercial aircraft orders. Excluding transportation, orders were up 1.5% following a 1.7% rise in September.
US consumer confidence at highest in over four years
US consumer confidence rose this month to its highest level in almost five years, pushed up by steady improvement in hiring.
The Conference Board said its consumer confidence index rose to 73.7 in November from 73.1 in October. Both are the best readings since February 2008.
Americans are more optimistic because the see the job market getting better. Employers added 171,000 jobs in October and more jobs were created in August and September than first thought.
The survey is watched closely because consumer spending drives nearly 70% of economic activity.
But the index is still below 90, which is consistent with a healthy economy. It last reached that level in December 2007. The index is far above the all-time low of 25.3 touched in February 2009.
