US business spending on equipment shows signs of cooling in July
WASHINGTON: New orders for key US-manufactured capital goods unexpectedly fell in July and data for the prior month was revised lower, suggesting a loss of momentum in business spending on equipment that extended into the early part of the third quarter. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 percent last month after a downwardly revised 0.5 percent increase in June, the Commerce Department’s Census Bureau said on Monday.
Economists polled by Reuters had forecast these so-called core capital goods orders would be unchanged after a previously reported 0.9 percent jump in June. Business spending on equipment notched double-digit growth in the second quarter, with spending on goods largely holding up despite 525 basis points worth of interest rate hikes from the Federal Reserve in 2022 and 2023. The US central bank has maintained its benchmark overnight interest rate in the current 5.25 percent-5.50 percent range for more than a year. Fed Chair Jerome Powell last Friday signaled rate cuts were imminent amid concerns over labor market weakness. Financial markets expect the Fed to kick off its easing cycle next month with a 25-basis-point rate reduction, though a half-percentage point cut cannot be ruled out. Core capital goods shipments fell 0.4 percent after being unchanged in June. Non-defense capital goods orders rebounded 41.9 percent. They dropped 22.9 percent in June. Shipments of these goods rose 4.7 percent after increasing 6.1 percent in June.
Shipments go into the calculation of the business spending on equipment component in the gross domestic product report. Business investment in equipment contributed to the economy’s 2.8 percent annualized growth pace in the second quarter. “The upshot is that equipment investment is currently on track to post a modest gain in the third quarter,” said Paul Ashworth, chief North America economist at Capital Economics. Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, surged 9.9 percent in July after a revised 6.9 percent drop in the prior month. Durable goods orders were previously reported to have declined 6.7 percent in June. They were boosted last month by a 34.8 percent rebound in transportation orders after tumbling 20.6 percent in June. That reflected a 12.9 percent jump in defense aircraft orders. Motor vehicle orders fell 2.6 percent. —