Orders for US factory goods jump as pending home sales ‘edge up’

Fitch Ratings warns Washington over budget fighting

Capital

WASHINGTON, Feb 27, (Agencies): Orders for US factory goods that signal business investment plans jumped last month by the most in more than a year, suggesting companies are confident about their business prospects.

The Commerce Department said Wednesday that orders for so-called core capital goods, which include industrial machinery, construction equipment and computers, rose 6.3 percent in January from December. A sharp fall in demand for commercial aircraft caused overall durable goods orders to drop 5.2 percent, the first decline since August.

Orders for commercial aircraft are volatile from month to month and can cause large swings in the overall figure. Boeing reported orders for only two planes in January, down from 183 in December. Orders for defense equipment also plummeted by the most in more than 12 years.

Durable goods are items expected to last at least three years.

The increase in core capital goods suggests companies are willing to expand their production capacities despite worries that automatic government spending cuts will slow the economy in the coming months.

Still, the jump in orders wasn’t broadbased and occurred mostly in machinery and manufactured metal products. Orders for computers and communications equipment both fell and orders for autos and auto parts were unchanged.

About $85 billion in spending cuts are scheduled to kick in Friday and there is little sign that the White House and Congress will reach a deal to avoid them. Defense Department officials may have slowed purchases in January in anticipation of the cutbacks.

Business investment plans have held up in recent months despite the uncertainty surrounding tax and spending policies. Core capital goods orders dipped 0.3 percent in December but posted strong gains of 3.3 percent in November and 3 percent in October.

The report suggests US manufacturing is strengthening. The Institute for Supply Management said earlier this month that factory activity grew in January at the fastest pace in nine months. Measures of new orders and hiring both rose.

The National Association of Realtors said Wednesday that its seasonally adjusted index for pending home sales rose 4.5 percent last month to 105.9. That’s the highest since April 2010, when a homebuyer’s tax credit was about to expire.

There is generally a one- to two-month lag between a signed contract and a completed sale.

Pending home sales rose in all regions, but just barely ticked up in the West, where a limited supply of available homes is holding back sales.

US futures rose Wednesday on reassurances from the central bank that the lowinterest rate policies will continue. There was also positive data from the manufacturing sector.

Also: WASHINGTON: Ratings agency Fitch warned Washington Wednesday that continued political fighting over the government budget and deficit-cutting measures could lead to the US losing its top AAAgrade.

With the government two days away from enacting the harsh “sequester” budget cuts because political parties cannot agree a more moderate compromise, Fitch said that the policy deadlock could lower confidence in the world’s largest economy.

It pointed out that after the $85 billion sequester cuts that begin to take effect Friday comes a battle over a six-month budget, which has to be concluded by March 31 or the government could be shut down.

And shortly after that, on May 19, the country will hit its statutory borrowing limit.

“Implementation of the automatic spending cuts — the sequester — and a government shutdown would not prompt a negative rating action,” Fitch said in a statement.

“But such an outcome would further erode confidence that timely agreement will be reached on additional deficitreduction measures necessary to secure the ‘AAA’ rating.”