US core capital goods orders rebound in Jan

WASHINGTON: New orders for key US-made capital goods rose by the most in six months in January and shipments increased, but the trend in both measures of business spending on equipment remained soft, leaving forecasts for weak first-quarter economic growth intact.

The slowing economy is helping keep inflation tame, with other data on Wednesday showing producer prices barely rising in February, resulting in the smallest annual increase in more than 1-1/2 years. This environment supports the Federal Reserve’s wait-and-see approach to further interest rate hikes this year.

“There is still a strong case for the Fed to remain patient,” said Michael Pearce, a senior US economist at Capital Economics in New York. “The rebound in underlying capital goods orders is still consistent with a slowdown in business equipment investment growth, and producer price figures show few signs of a pick-up in inflation in the pipeline.”

Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rebounded 0.8 per cent, the biggest gain since July. These so-called core capital goods orders fell 0.9 per cent in December.

Economists polled by Reuters had forecast core capital goods orders edging up 0.1 per cent in January. Core capital goods orders increased 3.1 per cent on a year-on-year basis.

Core capital goods orders in January were boosted by orders for machinery, which rebounded 1.4 per cent after dropping 0.6 per cent in December. Orders for electrical equipment, appliances and components jumped 1.7 per cent after falling 0.2 per cent in the prior month.

But orders for computers and electronic products declined 1.3 per cent, the biggest drop since March 2017. There were also decreases in orders for primary metals while orders for fabricated metal products were unchanged.

Shipments of core capital goods jumped 0.8 per cent in January after edging up 0.1 per cent in the prior month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

The January report was delayed by a 35-day partial shutdown of the federal government that ended on January 25. The February report, which was scheduled for release this month, will now be published on April 2.

The strong core capital goods shipments in January prompted some economists to raise slightly their estimates for first-quarter business equipment spending. Investment in equipment by businesses accelerated in the fourth quarter of last year after slowing in the July-September period.

The first-quarter GDP growth forecast also got another small lift from a second report from the Commerce Department on Wednesday showing construction outlays jumped 1.3 per cent in January as investment in public projects hit a more than eight-year high. Construction spending had dropped for two straight months.

 — Reuters