Business spending plans gauge hits 13-month high

A gauge of planned U.S. business spending recorded its largest increase in more than a year in January, suggesting growing confidence in the durability of the economic recovery.

The case for the economy's resilience was further bolstered by another report on Wednesday showing that contracts to buy previously owned homes approached a near three-year high last month. Housing is expected to underpin growth this year.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 6.3 percent, the biggest gain since December 2011. These so-called core capital goods orders had slipped 0.3 percent in December.

"The encouraging tone of this report suggests that the business sector is beginning to feel sufficiently confident about the improving economic outlook to commit to investment activity," said Millan Mulraine, a senior economist at TD Securities in New York.

In a separate report, the National Association of Realtors said its pending home sales index increased 4.5 percent to its highest since April 2010, just before a home-buyer tax credit expired.

The rise in signed purchase contracts, which become sales after a month or two, added to data such as building permits and house prices that have suggested a decisive turnaround in the housing market.
Home building added to growth last year for the first time since 2005 and economists expect another contribution this year.

Still, the reports are unlikely to change the Federal Reserve's very easy monetary policy stance. Fed Chairman Ben Bernanke, testifying before Congress for a second straight day, pointed to the pick-up in housing as a sign the U.S. central bank's aggressive easing of monetary policy is gaining traction.
However, he signaled a willingness to press forward with efforts to spur an even stronger recovery and lower the jobless rate, which remains at a lofty 7.9 percent.

Stocks on Wall Street ended more than 1 percent higher on the data and Bernanke's comments, with the Standard & Poor's 500 posting its best daily percentage gain since January 2. The U.S. dollar weakened against a basket of currencies, while prices for U.S. government debt fell.

FACTORY ACTIVITY COOLING

Although shipments of core capital goods, used to calculate equipment and software spending in the government's measures of gross domestic product, fell last month, economists were little worried.
"The balance between orders and shipments of capital goods is looking healthier as backlogs of core capital goods orders rose for the first time in eight months," said John Ryding, chief economist at RDQ Economics in New York.

"Our take is that manufacturing activity - especially in the capital goods area - is bouncing back after cautious behavior ahead of the fiscal cliff."

U.S. factory activity, which helped lift the economy from recession, has cooled in recent months, held back by sluggish domestic demand, tighter fiscal policy in Washington and slowing global growth.
While business investment plans looked strong, the report showed that overall orders for durable goods - items ranging from toasters to aircraft that are meant to last three years or more - tumbled 5.2 percent as demand for civilian and defense aircraft collapsed. It was the first drop since August.
Orders for civilian aircraft, which are very volatile and which tend to fall at the start of the year, dived 34 percent.

Boeing received orders for only 2 aircraft, down from 183 in December. Economists said the decline was probably not related to the grounding of Boeing's 787 Dreamliners after problems with overheating batteries.

"I haven't heard any reports about airlines canceling their orders. This could be a one-month lull rather than something greater," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.

Defense aircraft orders plunged 63.8 percent after soaring 58.5 percent in December, likely as orders were pushed forward ahead of $85 billion in government-wide spending cuts set to kick in on Friday.
Overall defense capital goods orders plummeted 69.5 percent in January, the sharpest fall since July 2000.

But durable goods orders excluding transportation increased 1.9 percent last month, also the largest gain since December 2011, after increasing 1 percent in December. That was a sign factory activity continues to plod along.

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