US core capital goods orders rise in boost to business investment

[WASHINGTON] New orders for key US-made capital goods increased for an eighth straight month in December, pointing to solid growth in business spending on equipment in the fourth quarter and likely helping to underpin the economic recovery.

Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.6 per cent last month, the Commerce Department said on Wednesday. These so-called core capital goods orders advanced 1.0 per cent in November.

Last month's increase was in line with economists' expectations.

Core capital goods orders surged 1.8 per cent year-on-year in December. Demand has shifted away from services like travel and hospitality towards goods like motor vehicles, electronics and medical equipment during the Covid-19 pandemic. That has contributed to boosting production at factories, though output remains about 2.6 per cent below its pre-pandemic level.

Manufacturing, which accounts for 11.9 per cent of the economy, is also being supported by businesses rebuilding depleted inventories. In December, core capital goods orders were lifted by demand for machinery and primary and fabricated metal products. But orders for computers and electronic products fell while bookings for electrical equipment, appliances and components barely rose.

Shipments of core capital goods increased 0.5 per cent last month.

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

They gained 0.5 per cent in November.

The data came ahead of government's snapshot of fourth-quarter gross domestic product on Thursday. According to a Reuters survey of economists, GDP likely increased at a 4.0 per cent annualised rate last quarter.

The anticipated sharp deceleration in growth from a record 33.4 per cent pace of expansion in the July-September period would reflect the exhaustion of nearly US$3 trillion in pandemic relief money from the government and a flare-up of coronavirus infections.

The government provided nearly US$900 billion in additional fiscal stimulus at the end of December, which is likely to jolt consumer spending in January after it slowed in the last two months. President Joe Biden has unveiled a recovery plan worth US$1.9 trillion, though there is resistance from some lawmakers.

The economy contracted at a 31.4 per cent rate in the second quarter, the deepest since the government started keeping records in 1947. It plunged into recession last February.

Business investment on equipment rebounded strongly in the third quarter after five straight quarterly declines.

Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, gained 0.2 per cent in December after rising 1.2 per cent in November.

Durable goods orders were restrained by a 1.0 per cent decline in orders for transportation equipment, which followed a 1.9 per cent increase in November.

Orders for civilian aircraft plunged 51.8 per cent. This was despite Boeing reporting on its website that it had received 90 aircraft orders in December, up from 27 in November.

The government recently lifted a 20-month grounding of Boeing's best-selling 737 MAX jets that came after two crashes in Indonesia and Ethiopia.

Orders for motor vehicles and parts rose 1.4 per cent in December after accelerating 2.8 per cent in November.

REUTERS