Factory Orders Rise, Pending Home Sales Gain

U.S. Economy: Factory Orders Rise, Pending Home Sales Gain

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By Bob Willis and Shobhana Chandra

May 4 (Bloomberg) -- Factory orders unexpectedly rose inMarch and more Americans signed contracts to buy previouslyowned homes, indicating the U.S. economy gained speed enteringthe second quarter.

The 1.3 percent increase in orders placed withmanufacturers matched the prior month’s gain, which was morethan twice as large as previously estimated, the CommerceDepartment said today in Washington. Signed home-purchaseagreements, or pending sales, rose 5.3 percent in March,according to the National Association of Realtors.

Factory sales rose the most since November 2007 ascompanies such as Texas Instruments Inc. and Caterpillar Inc.profited from increased spending on equipment and inventoryrestocking. Rising demand may generate the job growth needed tosustain the recovery and maintain gains in housing that havelargely been owed to a government tax incentive.

“Manufacturing is unambiguously the strongest part of theeconomy,” said Stephen Stanley, chief economist at PierpontSecurities LLC in Stamford, Connecticut. “The hope is thatdemand continues to strengthen so it becomes a sustainablerecovery. If we get some really good job growth, that will bethe clincher.”

Stocks held earlier losses after the reports on concern theEuropean government debt crisis is spreading to Spain andPortugal. The Standard & Poor’s 500 Index fell 2.4 percent to1,173.1 at 11:29 a.m. in New York. Treasury securities rose.

Factory orders were forecast to be little changed after apreviously reported 0.6 percent gain the prior month, accordingto the median forecast of 67 economists surveyed by BloombergNews. Projections ranged from a drop of 1 percent to an increaseof 1 percent.

Orders Minus Transportation

Orders excluding volatile transportation goods, such asaircraft, jumped 3.1 percent, the most since August 2005. Demandfor civilian aircraft slumped 67 percent, the CommerceDepartment’s figures showed.

Bookings for capital goods excluding aircraft and militaryequipment, a measure of future business investment, increased4.5 percent, more than the government estimated last week.Shipments of those goods, used to calculate gross domesticproduct, rose 2.3 percent, also better than the figures issuedlast week.

Flush with profits, businesses are spending more onequipment. Business investment rose at a 13 percent annual ratein the first quarter after a 19 percent surge at the end of2009, the government reported last week.

Texas Instruments

Texas Instruments, the second-largest U.S. chipmaker,posted a 54 percent gain in first quarter sales and predictedsecond-quarter sales and profits that topped analysts’estimates, helped by demand for semiconductors used inindustrial machinery, phone networks and cars.

“Our production output is at an all-time high, and we havea multiyear ramp in capacity under way that will allow us tosupport our customers,” Chief Financial Officer Kevin Marchsaid in a conference call on April 26.

Caterpillar is seeing surging orders from abroad. Itsindustrial machinery sales to Asia-Pacific soared 40 percentwhile shipments to Latin America rose 7 percent and NorthAmerica sales fell 15 percent in the first quarter, the companyreported last month.

“We’re seeing a pretty good bounce in investor confidencearound the world in terms of our customers, particularly thosein the emerging-market theaters around the world,” CaterpillarChief Executive Officer Jim Owens said in a Bloomberg Televisioninterview on April 26.

Jump in Exports

Exports rose in February to the highest level since October2008, the Commerce Department reported last month. Manufacturingin April expanded at the fastest pace since 2004, according to anational survey of purchasing managers yesterday.

While manufacturing is benefiting from the globalexpansion, the housing market has received its boost from a taxcredit of as much as $8,000 for buyers who signed the contractsby the end of April.

Lawrence Yun, the National Association of Realtors’ chiefeconomist, said in a statement that sales will be “measurablylower” in the months immediately following the expiration.

The incentive for first-time homebuyers was extended inNovember to include some current owners, and requires buyers toclose transactions by June 30.

“Clearly the homebuyer tax credit has helped stabilize themarket,” Yun said. “Later in the second half of the year, andinto 2011, home sales will likely become self-sustaining if theeconomy can add jobs.”

Leading Indicator

Pending home sales are considered a leading indicatorbecause they track contract signings. The Realtors’ existing-home sales report tallies closings, which typically occur amonth or two later. The Realtors group, whose pending sales datago back to January 2001, started publishing the index in March2005.

Three of four regions saw an increase in signed contracts.The report showed a 13 percent gain in the South, a 1.9 percentrise in the West and a 1.2 percent increase in the Midwest.Pending sales fell 3.3 percent in the Northeast.

Compared with March 2009, pending sales rose 24 percent.

To contact the reporters on this story:Bob Willis in Washington at [e-mail];Shobhana Chandra in Washington at [e-mail]

Last Updated: May 4, 2010 11:30 EDT