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US core capital goods orders rise modestly; overall orders weak

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New orders for US manufactured capital goods rose modestly in June, but weak demand for machinery and a range of other goods suggested business spending will remain subdued for a while.

[WASHINGTON] New orders for US manufactured capital goods rose modestly in June, but weak demand for machinery and a range of other goods suggested business spending will remain subdued for a while.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.2 per cent last month after a downwardly revised 0.5 per cent decline in May.

These so-called core capital goods orders were previously reported to have declined 0.4 per cent in May. Economists polled by Reuters had forecast core capital goods orders rising 0.3 per cent last month.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 4.0 per cent last month, the biggest drop since August 2014, after a downwardly revised 2.8 per cent fall in May.

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Durable goods orders were previously reported to have declined 2.3 per cent in May.

Business spending has weakened since late 2015, in part as lower oil prices squeezed profits in the energy sector, forcing companies to slash capital spending budgets. Uncertainty over global demand and the upcoming US presidential elections are also making companies cautious about spending, economists say.

Business investment remains soft despite data ranging from retail sales to housing suggesting the economy has regained speed after growth almost stalled early in the year. Economists say weak business spending could be one of the factors that could encourage Federal Reserve officials to keep interest rate unchanged when the end a two-day meeting later on Wednesday.

Prospects for a pick-up in business spending remain dim against the backdrop of lackluster corporate profits.

Shipments of core capital goods, which are used to calculate equipment spending in the government's gross domestic product measurement, fell 0.4 per cent last month after sliding 0.5 per cent in May. That suggests business spending probably fell again in the second quarter.

In June, orders for electrical equipment, appliances and components increased 0.8 per cent. But orders for machinery, primary metals, computers and electronic products fell.

Orders for transportation equipment slumped 10.5 per cent as bookings for aircraft plunged 58.8 per cent. Orders for automobiles rose 2.6 per cent.

REUTERS

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