US capital goods orders rise solidly

WASHINGTON: New orders for US-made capital goods rose more than expected in November amid strong demand for machinery and primary metals, suggesting some of the oil-related drag on manufacturing was starting to fade.
Other data on Thursday showed the economy grew faster than previously estimated in the third quarter, notching its quickest pace in two years. And while the number of Americans applying for unemployment aid hit a six-month high last week, it remained below a level that is associated with labour market strength.
The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.9 per cent after gaining 0.2 per cent in October.
There were increases in orders for electrical equipment, appliances and components, as well as computers and electronic products. Economists polled by Reuters had forecast these so-called core capital goods rising only 0.3 per cent in November.
The dollar initially rose against a basket of currencies on the data, but later gave up gains to trade flat. Prices for US government bonds slipped, while US stock index futures rose. A collapse in oil prices last year, together with a surge in the dollar, pressured manufacturing. Much of the impact has been through weak business spending on equipment, which has contracted for four consecutive quarters.
But with oil prices hovering above $50 per barrel, manufacturing, which accounts for 12 per cent of the US economy, is starting to perk up. Gas and oil well drilling has risen over the last several months.
Economists expect business spending to rebound in 2017, driven in part by president-elect Donald Trump’s perceived business-friendly policies.
The incoming Trump administration has promised to slash taxes, remove some regulations and increase infrastructure spending. But manufacturing gains are likely to be limited by renewed dollar strength in the wake of Trump’s victory.
Since Trump’s November 8 election victory, the dollar has increased 4.4 per cent against the currencies of the United States’ main trading partner on concerns that the business mogul’s policy agenda could fan inflation.
GDP REVISED HIGHER: Last month, shipments of core capital goods rose 0.2 per cent after falling 0.3 per cent in October. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
In another report, the Commerce Department said GDP increased at a 3.5 per cent annual rate in the third quarter instead of the previously reported 3.2 per cent pace. That was the strongest growth rate since the third quarter of 2014 and followed the second quarter’s anaemic 1.4 per cent pace.
The upward revision reflected stronger growth in consumer spending, business investment in structures and intellectual property products than previously estimated, underscoring the economy’s solid fundamentals, which contributed to the Federal Reserve raising interest rates last week.
The US central bank lifted its benchmark overnight interest rate by 25 basis points to a range of 0.50 per cent to 0.75 per cent, also encouraged by a sturdy labour market. The Fed forecast three rate hikes in 2017. A third report from the Labour Department showed initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 275,000 for the week ended December 17, the highest since June. — Reuters