WASHINGTON, Aug 24 (Reuters) – New orders for U.S. manufactured capital goods rose in July, but the pace slowed from the previous month, suggesting a slight rebound in business spending this quarter.
A report from the Commerce Department on Wednesday showed strong gains in shipments of these goods. Part of the rise in prices was due to businesses spending more, the data was another sign that the economy was growing slowly and was not in recession.
“The lack of a sustained decline in orders suggests that businesses are still investing despite concerns about tighter financial market conditions, declining sentiment and recession,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.4% last month. June data was revised higher to show that orders for these so-called major capital goods grew 0.9% instead of 0.7% as previously reported. Economists polled by Reuters had forecast orders for major capital goods to rise 0.3 percent.
The report highlights the economy’s resilience by adding data on retail sales, industrial production and the labor market. Orders are shrinking as the Federal Reserve’s aggressive monetary policy campaign to fight inflation dampens demand. Fed Chairman Jerome Powell’s speech at the annual Jackson Hole International Central Bank Conference in Wyoming on Friday may shed more light on whether the US central bank can engineer an economic slowdown without triggering a collapse.
Manufacturing, which accounts for 11.9 percent of the economy, is underpinned by still-low output of durable manufactured goods such as motor vehicles.
There were increases in orders for machinery, fabricated metal products, and computer and electronic products in July. But orders for electrical equipment, appliances and components fell, as did primary metals.
Stocks on Wall Street were trading high. The dollar was largely unchanged against a basket of currencies. US Treasuries fell.
A distorted image
Core capital goods rose 0.7% after rising 0.8% in June. Transportation of capital goods is used to calculate equipment costs in the GDP measure.
High prices, unadjusted for inflation, are making it difficult to read clean device cost data. There is uncertainty about which price index the government will use to adjust for inflation.
The producer price index for private capital goods rose 0.5% in July, indicating that inflation-adjusted orders for capital goods were negative last month. But shipments are running ahead of inflation, putting equipment spending on a modest growth path at the start of the third quarter.
Andrew Hollenhorst, chief U.S. economist at Citigroup in New York, said: “Lower commodity prices in the third quarter are likely to lead to a lower fixed-income index and, as a result, additional nominal strength that could pave the way for a measure of real growth.”
Business spending on equipment fell at a 2.7% annualized rate in the second quarter, the fastest in two years. This, combined with a slower pace of inventories compared to the previous two quarters, helped weigh on gross domestic product. The economy shrank 1.3% in the first half of the year.
Durable goods with a lifespan of three years or more, from toasters to airplanes, were unchanged in July after rising 2.2% in June.
0.7% discount on orders for transportation equipment. Orders for civil aircraft grew by 14.5 percent. They, however, fell short by 49.8% for defense aircraft orders. Boeing ( BAN ) reported on its website that it received only 50 orders for 130 planes in June.
Orders for motor vehicles and parts rose 0.2 percent last month. Motor vehicle production is constrained by global semiconductor chip shortages. Durable goods shipments rose 0.4% after rising 0.3% in June. Unfilled durable goods rose 0.7%, while inventory gained 0.2%.
“Measuring inventories is difficult, especially in times of inflation, but the reported inventory-to-sales ratio did not increase last year and supports the view that inventories will remain tight,” said Conrad DeQuadros, senior economic adviser at Brain Capital in New York.
While manufacturing is on the rise, the strongest interest rate hike since the 1980s is taking a toll on the housing market. In a separate report on Wednesday, the National Association of Realtors reported that its index of pending home sales, based on signed contracts, fell 1.0% last month to 89.8, the lowest level since April 2020. Contracts have declined in eight of the past nine months. . Read more
However, with housing prices still high due to a shortage of affordable homes, a housing market crash is unlikely.
“We’re not in danger of a housing bust, the market is nothing like what it was during the last housing crisis,” said Nicole Bachaud, chief economist at Zillow in Seattle. “We should not confuse the inability to buy a house with the lack of desire to buy.”
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Reporting by Lucia Mutikani; Editing by Nick Zieminski and Paul Simao
Our Standards: The Thomson Reuters Trust Principles.
