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US capital goods data underscores economy’s strength

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WASHINGTON: New orders for US-made capital goods increased more than expected in August and shipments maintained their upward trend, pointing to underlying strength in the economy despite an anticipated drag on growth from Hurricanes Harvey and Irma.


The signs of an acceleration in business spending on equipment bolstered prospects of a December interest rate hike by the Federal Reserve, boosting the dollar and pushing up the yield on the two-year US Treasury note to its highest level since 2008.


The Commerce Department said on Wednesday non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.9 per cent last month after an upwardly revised 1.1 per cent gain in July.


“The manufacturing sector appears to be a bright spot in the US economy,” said John Ryding, chief economist at RDQ Economics in New York.


Economists had forecast orders of these so-called core capital goods increasing 0.3 per cent last month following a previously reported 1.0 per cent jump in July. Core capital goods orders surged 3.3 per cent year-on-year.


Shipments of core capital goods rose 0.7 per cent after advancing 1.1 per cent in July. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.


The Commerce Department said it was unable to isolate the effects of Hurricanes Harvey and Irma on the data. Harvey, which devastated parts of Texas, has hurt August retail sales, industrial production, home-building and home sales.


Irma, which struck Florida early this month, is expected to further hold down housing activity. That was flagged by a report on Wednesday from the National Association of Realtors showing that contracts to buy previously owned homes dropped 2.6 per cent in August to a 19-month low.


As a result, the storms are expected to cut into third-quarter economic growth. Third-quarter GDP growth estimates are below a 2.5 per cent annualised rate. The economy grew at a 3.0 per cent pace in the second quarter.


Business spending on equipment added almost half-a percentage point to GDP in the third quarter, the most in nearly two years. That is supporting manufacturing, which accounts for about 12 per cent of the US economy.


“Business equipment investment is on track for a big rise in the third quarter,” said Michael Pearce, a US economist at Capital Economics in New York.


Last month, orders for machinery, primary metals, computers and electronic products as well as transportation equipment increased.


Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rebounded 1.7 per cent last month as bookings for transportation equipment jumped 4.9 per cent.


Durable goods orders fell 6.8 per cent in July. — Reuters


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