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US cuts machinery and equipment spending

Demand for capital goods tumbles 4.5%


February 29, 2012
by CANADIAN PRESS

WASHINGTON: US businesses slashed spending on machinery and equipment in January after a tax break expired, pushing orders for long-lasting manufacturing goods down by the largest amount in three years.

Orders for durable goods fell 4% last month, the US Commerce Department said.

A big reason for the decline was demand for so-called core capital goods, which are viewed as a good measure of business investment plans, tumbled 4.5%.

That’s the biggest drop in a year.

Economists attributed much of the decline in January to the end of the tax credit. They noted demand for core capital goods hit an all-time high in December after companies raced to qualify for the tax credit.

Many said the underlying trend remained strong and predicted further business investment in the coming months.

“We see no evidence of underlying slowing in the industrial economy so we look for a rebound in February and the re-emergence of the upward trend over the next couple of months,” said Ian Shepherdson, chief economist at High Frequency Economics.

A durable good is a product expected to last at least three years, which includes everything from appliances and cars to heavy machinery and planes. Orders tend to fluctuate sharply from one month to the next.

But the overall trend in orders has increased since the recession ended nearly three years ago.

In January, overall orders totalled $206.1 billion – 38.6% above the low hit during the recession. Orders are still 16% below their peak hit in December 2007.

US factories boosted output last month and December ended up being their best month of growth in five years. Strong auto sales and growing business investment in machinery and other equipment are keeping factories busy and helping the economy grow.

About 9% of the nation’s jobs are in manufacturing. But last year, factories added 13% of new jobs. And in January, about one-fifth of the 243,000 net jobs the economy created were in manufacturing.