U.S core capital goods orders unchanged

New orders for key U.S.-made capital goods were unexpectedly unchanged in October and shipments rebounded modestly, which could temper expectations of an acceleration in business spending on equipment early in the fourth quarter.

The Commerce Department said on Wednesday that the flat reading in orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, followed a downwardly revised 0.5 percent decline in September.

These so-called core capital goods orders were previously reported to have dipped 0.1 percent in September.

Economists polled by Reuters had forecast core capital goods orders rising 0.2 percent last month. Core capital goods orders increased 6.4 percent on a year-on-year basis.

Shipments of core capital goods rose 0.3 percent in October after a downwardly revised 0.2 percent drop in the prior month.

Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They were previously reported to have slipped 0.1 percent in September.

Business spending on equipment stalled in the third quarter, raising concerns about the durability of the economic expansion that is now in its ninth year and the second longest on record.

Business spending on equipment has faltered despite the Trump administration’s $1.5 trillion tax cut. Some companies including Apple (AAPL.O) used their tax windfall to buy back shares on a massive scale.

Spending on equipment could also be undercut by declining oil prices. Brent crude has dropped about 28 percent since early October amid rising concerns about slowing global growth.

The Federal Reserve has noted the slowdown in business spending, saying in its policy statement earlier this month that “business fixed investment has moderated from its rapid pace earlier in the year.”

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 4.4 percent in October. That was the biggest drop since July 2017 and reflected a 12.2 percent decline in demand for transportation equipment.

Durable goods orders edged down 0.1 percent in September.

Orders for motor vehicles and parts rose 0.2 percent last month. Orders for defense aircraft plunged 59.3 percent and bookings for civilian aircraft dropped 21.4 percent. Boeing reported on its website that it had received only 18 aircraft orders in October compared to 65 in September.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell