U.S. economy shows signs of cooling

BLOOMBERG — Companies placed fewer orders for computers, machinery and other capital equipment in April for a second month, indicating manufacturing in the U.S. is cooling.

Bookings for non-military goods excluding aircraft fell 1.9% after dropping 2.2% in March, the first back-to- back decline in a year, the Commerce Department said Thursday (May 24) in Washington. Other reports showed claims for jobless benefits were little changed last week and consumer confidence hovered near a four-month low.

“We can’t seem to really gather any steam,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “From consumer spending to hiring to manufacturing activity, everything is kind of moderate and OK but not particularly spectacular or satisfying.”

Slowdowns in Europe and parts of Asia combined with a cooling in business spending in the U.S. after the reduction of a government tax credit this year may restrain manufacturing. At the same time, Americans are buying cars at the fastest pace in four years, creating a rebound in auto making that is rippling through the economy.

Applications for jobless benefits decreased by 2,000 to 370,000 in the week ended May 19, in line with the median forecast of economists surveyed by Bloomberg News, according to data from the Labor Department.

Consumer confidence improved last week for the first time in a month as falling gasoline prices helped stem dismay over household finances, another report showed. The Bloomberg Consumer Comfort Index was minus 42 in the seven days ended May 20 compared with a four-month low of minus 43.6 the prior period. The measure slumped 12.2 points over the previous four weeks, wiping out almost the entire gain for the year.

Even with a slowdown, the U.S. factories stand out as a source of strength among global producers. Euro-area manufacturing slumped to a 35-month low, while factories in China contracted for a seventh straight time in May, according to separate data released Thursday. Business confidence in Germany declined, while Britain’s economic contraction in the first quarter was deeper than previously estimated, other reports showed.

Demand for all U.S. durable goods, those meant to last at least three years, rose 0.2%, today’s report showed, matching the median forecast in a Bloomberg survey. Estimates of the 75 economists surveyed ranged from a drop of 2.8% to a 4.2% gain. The Commerce Department revised the March reading to a 3.7% decline from a previously estimated 3.9% drop.

Bookings for non-defense capital goods excluding aircraft are considered a proxy for future business investment in items such as computers, engines and communications gear.

Thursday’s report showed shipments of such goods, used in calculating gross domestic product, decreased 1.4% in April after rising 1.9% the previous month.

Economists at Morgan Stanley in New York reduced their estimate for growth this quarter to a 2.4% annual rate from 2.7% previously based on the slowdown in shipments combined with figures showing a smaller-than-expected gain in inventories.

The expiration at the end of 2011 of a tax incentive allowing 100% depreciation on equipment purchases may have prompted a slowdown in investments this year. The allowance for 2012 is 50%.

Demand for transportation equipment climbed 2.1%, reflecting a 5.6% increase in automobiles and parts, Thursday’s report showed.

The report also showed unfilled orders for durable goods decreased 0.1% last month, while inventories climbed 0.3%.

The recovery in manufacturing will be slow, said Mike DeWalt, director of investor relations of Caterpillar Inc., the largest maker of construction and mining equipment.

“Based on how poor 2009 was, how deep the recession was, what happened in the relatively modest improvements in 2010 and 2011, there is a lot of recovery that needs to happen,” DeWalt said at a May 23 conference. “It could be a quite extended recovery, but maybe not as strong as in the past. But our business as a signal has been actually positive.”

Manufacturing expanded in May at the slowest pace in three months, another report today showed. An index based on a survey of factory purchasing managers fell to 53.9 from 56 in April, London-based Markit Economics said in a preliminary estimate today. A reading above 50 indicates expansion. The report showed production, orders and factory employment expanded at slower rates this month.

Cisco Systems Inc. earlier this month reported fourth- quarter sales projections that missed analysts’ estimates. John Chambers, chief executive officer of the computer-networking equipment maker, said orders from bigger companies declined in the period ended April 28 and it’s taking longer to sign large deals with corporate customers.

“We are seeing a hesitant spending environment,” Chambers said on a May 9 conference call.