US core capital goods orders rise, and that's a good sign

New orders for key US-made capital goods rose slightly more than expected in July and shipments surged, pointing to an acceleration in business spending early in the third quarter.

The Commerce Department said on Friday non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.4 per cent last month after being unchanged in June.

Economists polled by Reuters had forecast these so-called core capital goods orders rising 0.3 per cent last month. They were up 3.3 per cent from a year ago.

Shipments of core capital goods jumped one per cent after an upwardly revised 0.6 per cent increase in June. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. They were previously reported to have gained 0.1 per cent in June.

Businesses are boosting spending despite uncertainty over the prospect of tax cuts. President Donald Trump and his fellow Republicans in Congress have said they want to lower both corporate and individual taxes as part of a comprehensive tax restructuring, but few details have emerged. Business spending on equipment added 0.44 percentage point to the economy's 2.6 per cent annualised growth pace in the second quarter, the most in nearly two years.

It has been buoyed by the energy sector, where oil and gas drilling has rebounded after declining in the wake of the collapse in crude oil prices. That is helping to offset some of the drag on manufacturing from declining motor vehicle production.

Manufacturing accounts for about 12 per cent of the US economy. Last month, orders for machinery fell 1.4 per cent, the biggest drop since May 2016, after rising 0.6 per cent in June.

Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, tumbled 6.8 per cent last month as bookings for transportation equipment plunged 19 per cent.

The drop in durable goods orders was the biggest since August 2014 and followed a 6.4 per cent increase in June.

Boeing has reported on its website that it received only 22 aircraft orders in July, sharply down from 184 in the prior month.

Orders for motor vehicles and parts fell 1.2 per cent in July, the biggest drop since May 2016, after decreasing 0.7 per cent in June. Auto sales peaked in December 2016 and slowing demand has led to three consecutive monthly declines in motor vehicle production.

Source: Khaleej Times