US core capital goods orders flat in July; shipments up

[WASHINGTON] New orders for key US-made capital goods were steady in July, but an acceleration in shipments suggested business investment in equipment could offset an anticipated slowdown in consumer spending and keep the economy on a solid growth path in the third quarter.

The Commerce Department said on Wednesday that the unchanged reading in orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, last month followed a 1.0 per cent increase in June.

Economists polled by Reuters had forecast core capital goods orders climbing 0.5 per cent.

Shipments of core capital goods rose 1.0 per cent after increasing 0.6 per cent in June. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Business spending on equipment helped to power the economy's recovery from a short and sharp Covid-19 pandemic recession, driven by strong demand for goods, thanks to record low interest rates and massive fiscal stimulus.

The momentum, which has persisted despite supply chain bottlenecks, is welcome amid signs that consumer spending is cooling as the Delta variant of the coronavirus causes a resurgence in new infections across the country.

"Core capital goods orders have made a remarkable comeback over the past year and have shown little signs of slowing," said Sam Bullard, a senior economist at Well Fargo in Charlotte, North Carolina. "While overall durable goods orders may cool in the coming months as consumers pull back on goods spending and the auto sector contends with supply problems, businesses'desire to invest and restock inventories should provide a solid demand floor."

Retail sales fell in July in part because of motor vehicle shortages. Credit card data suggests spending on services like airfares, cruises as well as hotels and motels has been slowing.

Economists at Goldman Sachs last week cut their third-quarter GDP growth estimate to a 5.5 per cent annualised rate from a 9 per cent pace. Bank of America Securities slashed its GDP growth estimate for this quarter to a 4.5 per cent pace from a 7.0 per cent rate.

The economy grew at a 6.5 per cent rate in the second quarter, pulling the level of GDP above its peak in the fourth quarter of 2019.

REUTERS