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A Boeing 767 at the company's Everett, Wash., plant: Boeing orders vary dramatically from month to month. It took orders for only five aircraft in May, down from 34 in April, according to Capital Economics Ltd. (Joshua Trujillo/Associated Press)
A Boeing 767 at the company's Everett, Wash., plant: Boeing orders vary dramatically from month to month. It took orders for only five aircraft in May, down from 34 in April, according to Capital Economics Ltd. (Joshua Trujillo/Associated Press)

At The Bell

U.S. business spending 'on a tear' Add to ...

Business spending is one of the few bright spots in the U.S. economy.

Manufacturers of heavy equipment, machinery, trucks and communications equipment are seeing healthy orders with much of their production targeted at markets abroad.

What are the expectations?

Durable goods orders, excluding transportation, are scheduled for release on Thursday and they are forecast to have increased by 1 per cent during May, compared with a revised 1.1 per cent decline in April, according to a survey of economists by Bloomberg.





"While consumer spending has remained tentative, business spending on machinery and equipment has been on a tear," said Michael Gregory, a senior economist with BMO Nesbitt Burns Inc.

Boeing Inc. is also seeing strong orders, but orders vary dramatically from month to month distorting the data. Overall durable goods order figures are forecast to have dropped by 1.4 per cent in May, compared with the 2.9 per cent rise in April. Boeing took orders for only five aircraft in May, down from 34 in April, according to Capital Economics Ltd.

Recent U.S. data show that shipments and new orders in the manufacturing sector remain firmly in expansionary territory and the order backlog is at its highest level since mid-2004, Scotia Capital Inc. said in a report to clients.

"It's inevitable durable orders should be a bright spot because business spending collapsed during the credit crisis and there's still a lot of ground to make up," said Bill Cheney, chief economist for MFC Global Investment Management, an arm of Manulife Financial Corp. There are indications that even at current levels business spending is not keeping up with the need to replace older equipment, he said.

Capex budgets are growing

The capital spending crunch is ending after two years of cuts, Tobias Levkovich, chief U.S. equity strategist at Citigroup Global Markets, said in a report to clients. A Citigroup survey of 625 U.S. companies indicates capital spending in the industrial sector is expected to jump 30 per cent in 2010, while semi-conductor capex and auto industry spending is expected to grow by double digits. The pharmaceuticals industry is looking for a 15 per cent rise in spending.

Lower interest rates and easing lending standards by banks over the past 15 months is allowing companies to go ahead with their spending programs, Mr. Levkovich said.



However, several industries, including retailing, metals and mining, and energy and utilities, continue to restrain their capital spending, he said.

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