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US core capital goods orders jump in November

Thursday, December 22, 2016 - 21:55

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New orders for US-made capital goods rose more than expected in November amid strong demand for machinery and primary metals, suggesting some of the oil-related drag on manufacturing was starting to fade.

[WASHINGTON] New orders for US-made capital goods rose more than expected in November amid strong demand for machinery and primary metals, suggesting some of the oil-related drag on manufacturing was starting to fade.

The Commerce Department said on Thursday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.9 per cent after an unrevised 0.2 per cent gain in October.

There were increases in orders for electrical equipment, appliances and components, as well as computers and electronic products. Economists polled by Reuters had forecast these so-called core capital goods rising 0.3 per cent in November.

A collapse in oil prices last year, together with a surge in the US dollar, pressured manufacturing. Much of the impact has been through weak business spending on equipment, which has contracted for four consecutive quarters.

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But with oil prices hovering above US$50 per barrel, manufacturing, which accounts for 12 per cent of the US economy, is starting to perk up. Gas and oil well drilling has risen over the last several months.

Economists expect business spending to rebound in 2017, driven in part by president-elect Donald Trump's perceived business-friendly policies.

The incoming Trump administration has promised to slash taxes, remove some regulations and increase infrastructure spending. But manufacturing gains are likely to be limited by renewed US dollar strength in the wake of Mr Trump's victory.

Since Mr Trump's Nov 8 election victory, the US dollar has increased 4.4 per cent against the currencies of the United States' main trading partner on concerns that the business mogul's policy agenda could fan inflation.

Shipments of core capital goods rose 0.2 per cent last month after falling 0.3 per cent in October. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

A 13.2 per cent drop in demand for transportation equipment weighed on overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, which tumbled 4.6 per cent last month.

Durable goods orders increased 4.8 per cent in October. Last month's drop reflected a 73.5 per cent dive in civilian aircraft orders.

REUTERS

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