WASHINGTON: New orders for key US-made capital goods unexpectedly fell in December amid declining demand for machinery and primary metals, pointing to a sustained slowdown in business spending on equipment that could further crimp economic growth.
The economy’s outlook was also dimmed by other reports on Thursday showing a measure of factory activity in the mid-Atlantic region contracted in February for the first time since May 2016 and home resales plunging to a more than three-year low in January.
The reports, together with data last week showing steep declines in retail sales in December and manufacturing output in January, strengthen the Federal Reserve’s “patient” stance toward raising interest rates further this year.
Minutes of the US central bank’s January 29-30 policy meeting published on Wednesday noted that “some risks to the downside had increased” with regard to the outlook for the economy. The Fed left interest rates unchanged at that meeting and discarded promises of “further gradual increases” in borrowing costs.
The Commerce Department said orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7 per cent. Data for November was revised down to show these so-called core capital goods orders falling 1.0 per cent instead of declining 0.6 per cent as previously reported.
Economists polled by Reuters had forecast core capital goods orders rising 0.2 per cent in December. Core capital goods orders increased 6.1 per cent on a year-on-year basis.
Shipments of core capital goods rose 0.5 per cent in December after an unrevised 0.2 per cent drop in the prior month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
While the rebound in core capital goods shipments suggests continued moderate growth in business spending on equipment in the fourth quarter, the surprise drop in orders points to weakness in the months ahead.
The December report was delayed by a 35-day partial shutdown of the federal government that ended on January 25. The Commerce Department said the “processing and data quality were monitored throughout, and response and coverage rates were at or above normal levels for this release.”
The dollar trimmed gains versus a basket of currencies on the data and stocks on Wall Street were trading lower. US Treasury prices fell.
The softening business spending outlook was highlighted by a another report on Thursday from the Philadelphia Fed showing its manufacturing activity index dropped to a reading of -4.1 this month from 17.0 in January. That was the first negative reading since May 2016.
A reading below zero indicates contraction in the region’s manufacturing sector. However, manufacturers in the region that covers eastern Pennsylvania, southern New Jersey and Delaware remained generally upbeat about business conditions over the next six months.
— Reuters
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