By Mark Pender

NEW YORK (MNI) – MNI’s U.S. capital goods index edged seven tenths
higher in the Sept. 30 period to 66.0, well above 50 to indicate very
strong growth in year-on-year business conditions, according to the
results of Market News International’s weekly survey released Monday.

The description of business conditions continues to outstrip sales
growth which, at a year-on-year +8.8%, is the slowest since the second
quarter last year.

The sample’s income growth, at +7.0%, is one of the slowest
readings since the first quarter last year. Sample size in the latest
period is 212 companies.

Despite the slowdown in sales and income, the ongoing
pre-announcement period ahead of the earnings season has been very
quiet. Guidance from the sample points to steady year-on-year growth at
current levels through year end.

Last week’s durable goods report shows wide and strong gains in
August. New orders for the nondefense capital goods component jumped
nearly $4 billion to $78.1 billion which is the highest monthly level
since second-quarter 2008. Unfilled orders rose nearly $7 billion and,
at $516.9 billion, are at their highest level since first-quarter 2009.

August shipments jumped nearly $2 billion to $71.3 billion for the
first $70 billion plus reading since September 2008. If September
shipments do no more than match August, third-quarter quarterly growth,
at +5.2%, and year-on-year growth, at +9.6%, would well surpass
third-quarter 2010 as the strongest quarter of the recovery.

But one risk is the ongoing jump in the dollar which is cutting
into the sample’s foreign-exchange benefit. The competitive dollar has
added as much as 5% to the sample’s year-on-year export sales in recent
months.

Foreign exchange effects during the August quarter added 8% to
sales at the position & motion control unit of Actuant (ATU). Without
that benefit, year-on-year sales at the unit would have contracted.

CalAmp (CAMP), which makes wireless communications products, said
its backlog together with a strong order pipeline are offsetting an
otherwise uncertain business environment. The company sees income growth
increasing over the next two quarters.

In contrast, income is turning south at the electrical equipment
unit of AZZ Inc. (AZZ) which reports pricing pressures despite efforts
to increase new-business margins.

Operational issues including an unforeseen demand shift to aluminum
wheels from steel wheels has Accuride (ACW) on the defensive but the
heavy wheel maker expects the North American commercial vehicle market
to continue to expand into 2012 and 2013.

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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