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Demand for U.S. Capital Goods Climbs in Spending Rebound

By Shobhana Chandra and Michelle Jamrisko
November 27, 2012 4:06 PM EST 9 Comments
Valley Appliance employee Dan Arkels prepares to install a Maytag Corp. electric stove in the home of customer Karen May, unseen, in Princeton, Illinois.
Photographer: Daniel Acker/Bloomberg
Valley Appliance employee Dan Arkels prepares to install a Maytag Corp. electric stove in the home of customer Karen May, unseen, in Princeton, Illinois.

Consumer confidence climbed to a four-year high, home prices increased by the most since 2010 and demand for business equipment rose, signaling resilience in the U.S. economy as the new year approaches.

The Conference Board’s confidence index increased to 73.7 in November from 73.1 the prior month, the New York-based group said today. The S&P/Case-Shiller index of property values in 20 cities advanced 3 percent in September from a year earlier. Bookings for non-defense capital goods excluding aircraft rose 1.7 percent last month, the most since May, the Commerce Department reported.

“It’s good news starting out the fourth quarter,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “Concern that the fiscal cliff is a major roadblock to the recovery doesn’t seem to be holding up.”

Household finances and sentiment are getting a boost from a revival in the real-estate market, making it more likely that Americans will keep up the spending that accounts for 70 percent of the economy. At the same time, a rebound in business demand for machinery indicates that some companies were undeterred by the threat of automatic spending cuts and tax increases scheduled to take effect in January.

Stocks fell as the budget debate in Washington overshadowed the improving economic data. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,398.95 at the close in New York.

Confidence Forecasts

The Conference Board’s confidence index was forecast to climb to 73, according to the median estimate in a Bloomberg survey of 75 economists. The measure averaged 53.7 during the recession that ended in June 2009.

Consumers are benefiting as record-low mortgage rates drive a recovery in housing. Sales of previously owned homes unexpectedly rose in October, according to the National Association of Realtors.

The Conference Board’s report showed the share of Americans planning to buy a house rose to a record high, indicating a job- market recovery is making households more willing to make long- term commitments.

Among consumers who are more upbeat is Darshan Sampathu, 33, who works for an advertising agency in Boston.

“I feel like there is less risk these days, I’m not as worried about my job as much,” Sampathu said. “So I’m a little bit more confident about buying things like electronics and things I’ve been holding off buying the last few years.”

Thanksgiving Openings

Thanksgiving Day openings and midnight deals at chains from Target Corp. (TGT) to Wal-Mart Stores Inc. (WMT) drew shoppers. Spending in stores and online rose 13 percent to $59.1 billion in the four days starting Nov. 22, the National Retail Federation reported. A year ago, sales advanced 16 percent over the holiday weekend.

Gap Inc., the biggest U.S. specialty-apparel retailer, saw busy stores on Black Friday as customers responded to offers of $19 sweaters and $5 kids and baby graphic Ts from midnight to noon.

“We’re encouraged by what we’re seeing out there,” Mark Breitbard, president of Gap’s North America division for its namesake brand, said in a telephone interview on Nov. 23.

The percent of respondents in the Conference Board survey expecting more jobs to become available in the next six months increased to 20.3, the highest since February 2011, from 19.7 the previous month.

The share planning to buy a house within the next six months jumped to 6.9 percent, the most in data going back to 1964. The previous all-time high was 5.5 percent.

September’s increase in the S&P/Case-Shiller index of property values in 20 cities followed a 2 percent advance in the year to August.

New York

Eighteen of the 20 cities in the index showed a year-over- year gain, led by a 20.4 percent surge in Phoenix. New York and Chicago posted the two decreases in values from a year earlier. year-over-year records began in 2001.

“With six months of consistently rising home prices, it is safe to say that we are now in the midst of a recovery in the housing market,” David Blitzer, chairman of the index committee, said in a statement.

The report also included quarterly national figures. Prices covering all of the U.S. increased 3.6 percent in the third quarter from the same period in 2011 compared with a 1.6 percent gain in the year ended June.

Today’s durable goods report from the Commerce Department showed business investment may begin to rebound after companies held back on concern the so-called fiscal cliff might throw the economy into a recession next year.

Capital Goods

Demand for capital goods excluding defense equipment and aircraft, including items such as computers, engines and communications gear, climbed after a revised 0.4 percent drop in September that was larger than previously forecast.

Orders for all durable goods were little changed, beating the median forecast of economists surveyed by Bloomberg that projected a 0.7 percent drop.

Cleveland-based Eaton Corp. (ETN) is among companies saying customers are trying to find ways to meet rising demand even as they are concerned about the $607 billion in tax increases and spending cuts that may take effect next year if lawmakers don’t act.

“We’re seeing short-term lease activity at a very high level,” Chief Executive Officer Alexander Cutler said at a Nov. 13 conference, indicating companies would rather pay more for the flexibility that renting equipment provides in the short- term than commit to taking on a large purchase over the long run. “People are paying a premium at this point to really deal with the uncertainty,” he said.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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