US Core Capital Goods Orders Increase in August, According to Reuters

U.S. Capital Goods Orders Show Mixed Signals in August

Washington (Reuters) – New orders for important U.S.-manufactured capital goods unexpectedly increased in August, yet business investment in equipment seems to be losing momentum in the third quarter.

Orders for non-defense capital goods, excluding aircraft—an important indicator of business spending—rose by 0.2% last month, following a downwardly revised decline of 0.2% in July, according to data from the Commerce Department’s Census Bureau.

Economists surveyed had anticipated that these core capital goods orders would remain unchanged after a previously reported drop of 0.1% in July. However, core capital goods orders did see a year-on-year increase of 0.3% in August.

Higher borrowing costs continue to act as a limitation on business investment, even as a relaxation of financial conditions—prompted by the Federal Reserve’s intention to lower interest rates—encouraged spending on equipment in the second quarter.

The Federal Reserve recently reduced its overnight benchmark interest rate by 50 basis points to a range of 4.75%-5.00%, marking the first cut in borrowing costs since 2020. This follows a series of 525 basis points in rate hikes throughout 2022 and 2023.

Core capital goods shipments experienced a slight uptick of 0.1% after a decline of 0.4% in July. In contrast, non-defense capital goods orders decreased by 1.3% after a significant increase of 42.1% in July.

The shipments of these goods fell by 1.6% after a rise of 4.8% the previous month. These shipments are included in the calculation of business spending on equipment within the gross domestic product report.

Overall orders for durable goods—items expected to last three years or longer—remained unchanged last month, following a remarkable surge of 9.9% in July.

Notably, there were increases in orders for electrical equipment, appliances, machinery, fabricated metal products, and computers. However, orders for transportation equipment declined by 0.8% after a dramatic rise of 34.6% in July, while motor vehicles and parts orders increased by 0.2%.

Orders for commercial aircraft and components decreased by 7.5%. Boeing reported that it received 22 orders in August, a significant drop from 72 in July. The outlook for aircraft orders remains uncertain as Boeing faces several challenges, including a major strike.

The head of the Federal Aviation Administration recently stated to a U.S. Senate panel that Boeing needs to resolve various safety concerns before being permitted to increase production of the 737 MAX.