US business equipment spending weak; housing regaining footing

WASHINGTON: New orders for key US-made capital goods barely rose in November and shipments fell, suggesting business investment will probably remain a drag on economic growth in the fourth quarter.
The White House’s 17-month trade war with China has hurt business confidence, undermining capital expenditure. Despite a recent easing of tensions in the US-China trade war, regional manufacturing surveys showed business confidence remaining subdued in December.
Even if business confidence were to improve in early 2020, a turnaround in capital expenditure is unlikely. Boeing announced last week it would suspend production of its best-selling 737 MAX jetliner in January as fallout from two fatal crashes of the now-grounded aircraft drags into 2020.
“We expect industrial momentum will remain muted in 2020 amid an environment of sluggish global growth, persistent trade policy uncertainty and subdued corporate profitability,” said Oren Klachkin, lead US economist at Oxford Economics in New York.
“Boeing’s decision to halt production of the 737 MAX will present a continuing drag on orders.” The Commerce Department on Monday said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, edged up 0.1 per cent last month as a surge in demand for electrical equipment, appliances and components was partially offset by a drop in machinery orders.
These so-called core capital goods orders rose by an unrevised 1.1 per cent in October. Economists had forecast core capital goods orders gaining 0.2 per cent in November.
Core capital goods orders rose 0.7 per cent on a year-on-year basis in November.
The dollar was steady against a basket of currencies. US Treasury prices were trading higher. Stocks on Wall Street rose, in part on news Boeing ousted its Chief Executive Dennis Muilenburg.
Shipments of core capital goods dropped 0.3 per cent last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. Core capital goods shipments rose by a downwardly revised 0.7 per cent in October. They were previously reported to have jumped 0.8 per cent.
Economists could trim their GDP growth estimates for the fourth quarter after the weak shipments data. While manufacturing is struggling, the housing market is steadily rising, driven by the Federal Reserve’s three interest rate cuts this year.
In a second report on Monday, the Commerce Department said new home sales rebounded 1.3 per cent to a seasonally adjusted annual rate of 719,000 units last month, lifted by gains in activity in the Northeast and West regions.
October’s sales pace was, however, revised down to 710,000 units from the previously reported 733,000 units. Sales surged 16.9 per cent from a year ago.
Business investment has contracted for two straight quarters, with weak spending on equipment and nonresidential structures such as gas and oil well drilling contributing to the decline that has pushed manufacturing into recession.
Last month, overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 2.0 per cent after gaining 0.2 per cent in the prior month.
Durable goods orders were held down by a 72.7 per cent plunge in demand for defense aircraft orders and parts last month. Economists expect a rebound after the United States Congress passed a huge defense spending bill last week.— Reuters