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US core capital goods orders beat expectations; business investment rebounding

[WASHINGTON] New orders for key US-made capital goods increased more than expected in August and demand for the prior month was stronger than previously estimated, suggesting a rebound in business spending on equipment was underway after a prolonged slump.

The upbeat report from the Commerce Department on Friday, however, did not change views that the economy's recovery from the Covid-19 recession was slowing as government money to help businesses and tens of millions of unemployed Americans runs out. New coronavirus cases are rising in some parts of the country. That could crimp consumer spending, with retail sales already slowing.

Federal Reserve chair Jerome Powell this week stressed the need for more fiscal stimulus, telling lawmakers on Thursday that it could make the difference between continued recovery and a much slower economic slog. Another rescue package appears unlikely before the Nov 3 presidential election.

Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.8 per cent last month, the Commerce Department said. Data for July was revised up to show these so-called core capital goods orders increasing 2.5 per cent instead of 1.9 per cent as previously estimated.

Economists polled by Reuters had forecast core capital goods orders gaining 0.5 per cent in August.

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Core capital goods orders last month were boosted by increased demand for machinery, primary metals, computers and electronic products. But orders for fabricated metal products and electrical equipment, appliances and components fell.

US stocks fell. The dollar was higher against a basket of currencies. US Treasury prices rose.

STRONG THIRD QUARTER EXPECTED

Shipments of core capital goods increased 1.5 per cent last month.

Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product (GDP) measurement.

They advanced 2.8 per cent in July. Business investment tumbled at a record 26 per cent annualised rate in the second quarter, with spending on equipment collapsing at an all-time pace of 35.9 per cent. Investment in equipment has contracted for five straight quarters.

Economic activity rebounded sharply over the summer as businesses reopened after mandatory closures in mid-March to slow the spread of the coronavirus. GDP is expected to rebound at as much as a record 32 per cent annualised rate in the third quarter after tumbling at a 31.7 per cent rate in the April-June period, the worst performance since the government started keeping records in 1947.

But fading fiscal stimulus is casting a cloud over growth prospects for the fourth quarter. Goldman Sachs on Wednesday cut its fourth-quarter GDP growth estimate to a 3 per cent rate from a 6 per cent pace, citing "lack of further fiscal support". Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, rose 0.4 per cent in August after jumping 11.7 per cent in July. Durable goods orders were supported by a 0.5 per cent rise in orders for transportation equipment, though demand for motor vehicles and defence aircraft eased.

There were no orders for civilian aircraft reported for the second straight month in August.

Boeing has struggled with cancellations as airlines grapple with sharply reduced demand for air travel because of the pandemic. The grounding of Boeing's best-selling 737 MAX jets since March 2019 after two crashes in Indonesia and Ethiopia has also weighed on the company.

REUTERS

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