By Mark Pender

NEW YORK (MNI) – MNI’s U.S. capital goods index rose more than
three points in the April 2 period to a cycle-best 42.5, indicating
easing rates of year-on-year contraction and pointing strongly to
month-on-month and quarter-to-quarter expansion for the industrial
sector, according to Market News International’s weekly survey released
Monday.

The last time the index was 40 or better was in November 2008,
during the Great Contraction, when in two weeks the index fell nearly 10
points from 50.6 to bring five years of plus-50 readings to an end.

The warning period ahead of the first-quarter earnings season has
been very quiet. What pre-announcements there have been, have not been
warnings at all rather companies have been increasing guidance.

Income is at a cycle-best +21% with diffusion deep as roughly half
the sample, numbering 113 in the latest period, reporting significant
income gains.

Strength in the sample has been centered squarely in electronics, a
sector especially sensitive to Asian demand.

Chip-tool maker Aehr Test Systems (AEHR) reports two new orders
from Japanese chip makers. The company’s February quarter marked the end
of a deep streak of losses.

Chip-machinery maker Applied Materials (AMAT) raised sales
estimates for its fiscal October year, calling for year-on-year growth
of 60% compared to prior guidance for 50%.

Specialty metals maker Allegheny (ATI) sees 2010 as the transition
year to a resumption of full-year industrial growth beginning in 2011.
The company points to the importance of successful test flights underway
for the Boeing 787 and of deep-water prospects in the Gulf of Mexico.

The great weakness of the U.S. industrial sector is non-residential
construction both public and private, a weakness that reflects slack
industrial capacity, thinned workforces, tight credit, and delays in
stimulus funding.

Fabrications-maker Worthington (WOR) warns that non-residential
construction still has to bottom, while lighting maker Acuity Brands
(AYI) continues to see a full-year decline for the sector. Acuity Brands
is holding prices firm where it can but is discounting when it has to.

Backlogs at electrical-equipment maker AZZ Inc. (AZZ) continue to
decline reflecting weak new orders and which belies what it describes as
solid quotation activity, activity that normally would point to a rise
in backlogs.

AZZ also announced the acquisition of North American Galvanizing &
Coatings (NGA) for $125 million in cash. The sample’s merger &
acquisition activity has been quiet so far this year.

The March jobs report released Friday showed gains for key capital
goods areas including computers, communications equipment, machinery and
fabrications. But one would never have guessed gains for the group by
reading news out of the sector which have been showing a run of small
job cuts and little news of new hires.

A wave of big-cap companies are taking non-cash charges for changes
to retiree drug coverage. Typical is specialty-metals maker Carpenter
(CRS) which, with annual sales of $1.4 billion, is taking a $5.9 million
first-quarter charge.

Editor’s Note: MNI compiles its capital goods index based on a
weekly sample of company news and data.

** Market News International New York Newsroom: 212-669-6430 **

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