Does an Increase in Capital Goods Orders Yield an Economic Recovery?

This morning’s news that companies are reporting an increase in capital goods orders can be taken as a sign that businesses see brighter economic prospects in the future.  Capital goods orders are generally considered to be a leading indicator because companies are willing to shell out large amounts of cash for capital goods when they see their demand pipelines firm up.  In other words, when businesses feel that customer orders will increase, they will invest in their own machinery and tools, in order to fulfill that expected demand.  Of course, this conjecture depends on the assumption that companies can accurately forecast their future demand.  That their future profitability depends, in part, on accurately understanding their future demand provides companies a fairly robust incentive for developing accurate forecasts.

Companies that sell large amounts of capital goods include General Electric (NYSE:GE), Flow International Corp. (NASDAQ:FLOW), Hitachi, Ltd. (NYSE:HIT), Caterpillar, Inc. (NYSE:CAT), and Boeing (NYSE:BA).

Following is some information about these companies’ stocks:

  • General Electric: The shares recently traded at $15.79, up $0.04, or .25%, on the day.  The shares have traded in a 52-week range of $14.72 to $21.65 and its market capitalization is $167.38 billion.  About the company: General Electric Company is a diversified technology, media and financial services company. The Company offers products and services ranging from aircraft engines, power generation, and water processing technology to medical imaging, business and consumer financing, media content and industrial products. General Electric conducts operations globally.
  • Flow International Corp.: The shares recently traded at $2.46, up $0.07, or 2.93%, on the day.  The shares have traded in a 52-week range of $2.10 to $4.72 and its market capitalization is $117.39 million. About the company: Flow International Corporation designs, develops, manufactures, markets, and services ultrahigh-pressure waterjet cutting and cleaning systems, specialized robotics systems, and food safety applications. The Company’s waterjet systems are used to cut both metallic and nonmetallic materials in many industry segments, including the aerospace, automotive, food, and paper industries.
  • Hitachi, Ltd.: The shares recently traded at $50.87, up $1.17, 0r 2.35%, on the day.  The shares have traded in a 52-week range of $42.22 to $65.29 and its market capitalization is $22.98 billion. About the company: Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics. The Company’s diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.
  • Caterpillar, Inc.: The shares recently traded at $77.56, down $0.11, or 0.15%, on the day.  The shares have traded in a 52-week range of $72.60 to $116.55 and its market capitalization is $50.07 billion. About the company: Caterpillar Inc. designs, manufactures, and markets construction, mining, agricultural, and forestry machinery. The Company also manufactures engines and other related parts for its equipment, and offers financing and insurance. Caterpillar distributes its products through a worldwide organization of dealers.
  • Boeing: The shares recently traded at $63.33, up $0.55, or 0.88%, on the day.  The shares have traded in a 52-week range of $56.01 to $80.65 and its market capitalization is $46.96 billion.  About the company:  The Boeing Company, together with its subsidiaries, develops, produces, and markets commercial jet aircraft, as well as provides related support services to the commercial airline industry worldwide. The Company also researches, develops, produces, modifies, and supports information, space, and defense systems, including military aircraft, helicopters and space and missile systems.

(Note: Selected financial data are sourced from Google Finance.  All data are assumed to be accurate.)

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