US business spending on equipment strong; trade deficit widens

Published Thu, Jul 26, 2018 · 02:30 PM
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[WASHINGTON] New orders for key US-made capital goods increased more than expected in June and shipments surged, pointing to solid growth in business spending on equipment in the second quarter.

Expectations of robust economic growth in the April-June period were, however, tempered somewhat by other data on Thursday showing a widening in the goods trade deficit last month and no change in retail and wholesale inventories.

The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.6 per cent last month after an upwardly revised 0.7 per cent increase in May.

Economists polled by Reuters had forecast the so-called core capital goods orders rising 0.4 per cent last month after a previously reported 0.3 per cent gain in May. Core capital goods orders increased 6.8 per cent on a year-on-year basis.

Shipments of core capital goods jumped 1.0 per cent last month after an unrevised 0.2 per cent gain in May. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Business spending on equipment has risen since the fourth quarter of 2016. It is expected to have combined with robust consumer spending to boost second-quarter GDP growth.

According to a Reuters survey of economists, GDP growth likely increased at a 4.1 per cent annualized rate in the April-June period, which would be double the 2.0 per cent pace notched in the first quarter. The government will publish its advance estimate of second-quarter GDP growth on Friday.

But second-quarter GDP growth could miss expectations as the Commerce Department reported in another report on Thursday that the goods trade deficit shot up 5.5 per cent in June to US$68.3 billion.

Goods exports declined by US$2.2 billion to US$141.9 billion last month. Imports of goods rose by US$1.3 billion to US$210.3 billion. The department also said both wholesale and retail inventories were unchanged in June.

The dollar trimmed losses on the data versus a basket of currencies. Prices for US Treasuries were little changed.

Business spending on equipment is being supported by the Trump administration's US$1.5 trillion income tax cut package, which came into effect in January. But there are worries that trade tensions between the United States and its major trade partners, including China, Canada, Mexico and the European Union, could offset the fiscal stimulus.

Last month, orders for electrical equipment, appliances and components rebounded 1.5 per cent after slipping 0.5 per cent in May. Orders for computers and electronic products rose 0.6 per cent while those for machinery gained 0.2 per cent.

There was also an increase in demand for fabricated metals. Orders for primary metals fell 0.4 per cent.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 1.0 per cent in June as demand for transportation equipment rebounded 2.2 per cent. That followed a 0.3 per cent drop in durable goods orders in May.

Orders for motor vehicles and parts jumped 4.4 per cent last month, the biggest increase since March 2015, after plunging 4.5 per cent in May.

Orders for civilian aircraft rose only 4.3 per cent last month, despite Boeing reporting on it website that it had received 233 aircraft orders, up from only 43 planes in May.

A third report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 9,000 to a seasonally adjusted 217,000 for the week ended July 21, the Labor Department said on Thursday.

Claims dropped to 208,000 during the week ended July 14, which was the lowest reading since December 1969. The labor market is viewed as being near or at full employment.

Job gains averaged 215,000 positions per month in the first half of this year.

REUTERS

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