U.S. orders for durable goods rose 2.2% in February following steep January drop; orders for core capital goods rose 1.2%; orders totaled US$211.8B, 42% more than recession low but 14% below pre-recession peak
March 28, 2012
– U.S. companies ordered more long-lasting goods last month, showing businesses are willing to buy equipment and machinery even after an investment tax credit was halved.
The Commerce Department said Wednesday that orders for durable goods rose 2.2 percent in February after a steep drop in January. Greater demand for machinery, computers, autos and aircraft drove much of the increase.
Orders for so-called "core" capital goods, a good measure of business investment plans, rose 1.2 percent. Demand for these goods fell in January by the most in a year, after the full tax credit expired.
A durable good is expected to last at least three years. Orders can fluctuate sharply from month to month. In February, durable goods orders totaled $211.8 billion, 42 percent above the recession low. But orders remain nearly 14 percent below their peak in December 2007.
Last year, businesses could reduce their taxable profits by an amount equal to the cost of a major investment. That credit fueled a jump in orders for industrial machinery, computers and other capital goods. Spending on core capital goods surged nearly 3 percent to an all-time high in December.
The credit this year lets companies write off only half the cost. Many economists believe that change was a big reason for the January drop off in durable goods and core capital goods.
Still, business investment is expected to stay strong this year. Many companies delayed upgrading their facilities during the recession and are starting to catch up.
A vibrant manufacturing sector has helped drive the best job growth in two years. The economy has added an average of 245,000 jobs per month since December, which has lowered the unemployment rate to 8.3 percent.
The economy grew at a 3 percent annual rate in the final three months of last year, much faster than the 1.7 percent pace in the previous quarter. Many economists forecast that growth is slowing to a pace of around 2 percent in the current January-March quarter.
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