WASHINGTON: New orders for key US-made capital goods unexpectedly fell in October after three straight months of hefty gains, but a sustained increase in shipments pointed to robust business investment and economic momentum as the year winds down.
The economy’s prospects were bolstered by other data on Wednesday showing a decline in the number of Americans filing claims for unemployment benefits. Strong business investment and tightening labour market conditions will likely keep the Federal Reserve on track to raise interest rates next month.
“Fed policymakers will likely be impressed with the positive overall trend of business investment in equipment this year,” said Chris Rupkey, chief economist at MUFG in New York. “Interest rates do not need to be left at such low levels if the goal is to further business investment.”
The Commerce Department on Wednesday said orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, declined 0.5 per cent last month. That was the biggest drop since September 2016 and followed an upwardly revised 2.1 per cent increase in September.
Orders of these so-called core capital goods increased at a 14.5 per cent annualised pace in the three months prior to October, the strongest since June 2013. Economists had forecast orders of core capital goods increasing 0.5 per cent last month after a previously reported 1.7 per cent jump in September. Core capital goods orders rose 4.4 per cent on a year-on-year basis.
Shipments of core capital goods advanced 0.4 per cent last month after accelerating by 1.2 per cent in September, pushing the annualised three-month pace to 13.1 per cent. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
“The solid trend for the shipments data through October suggests that the fourth quarter will be another strong quarter for equipment spending,” said Daniel Silver, an economist at JPMorgan in New York. “We see some upside risk to our real GDP growth forecast for the fourth quarter.”
Prices for US Treasuries rose marginally in thin trading ahead of Thursday’s Thanksgiving holiday. The dollar fell against a basket of currencies. Stocks on Wall Street were little changed near record highs as a retreat in technology stocks was offset by a jump in crude prices. Core capital goods shipments have been increasing since February, in part fuelled by expectations that President Donald Trump and his fellow Republicans in Congress will push through hefty corporate tax cuts. — Reuters
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