By Lucia Mutikani
WASHINGTON- New orders for key US manufactured capital goods unexpectedly fell in July and data for the prior month was revised lower, suggesting a loss of momentum in business spending on equipment that extended into the early part of the third quarter.
The report from the Commerce Department on Monday also indicated that the manufacturing sector continued to tread water amid higher interest rates. While orders for long-lasting manufactured goods rebounded sharply last month, aircraft accounted for the increase.
Still, the pace of growth in business equipment investment is likely sufficient to sustain the economic expansion.
“The economy hasn’t hit the skids yet,” said Christopher Rupkey, chief economist at FWDBONDS. “Business investment in long-lived core capital goods orders has slowed somewhat at the start of the third quarter, but new orders are miles away from indicating an economic recession for the broader economy.”
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 percent last month after a downwardly revised 0.5 percent increase in June, the Commerce Department’s Census Bureau said.
Economists polled by Reuters had forecast these so-called core capital goods orders would be unchanged after a previously reported 0.9 percent jump in June. Core capital goods orders rose 0.5 percent year-on-year in July.
Machinery orders were unchanged in July, while those for computers and electronic products dropped 0.7 percent . Orders for electrical equipment, appliances and components fell 0.4 percent . There were also decreases in orders for primary metals. But orders for fabricated metal products rose 0.2 percent .
Core capital goods shipments fell 0.4 percent after being unchanged in June. Non-defense capital goods orders rebounded 41.9 percent . They dropped 22.9 percent in June.
Shipments of these goods rose 4.7 percent after increasing 6.1 percent in June.
Shipments go into the calculation of the business spending on equipment component in the gross domestic product report.
Business investment in equipment notched double-digit growth in the second quarter, with spending on goods largely holding up despite 525 basis points worth of interest rate hikes from the Federal Reserve in 2022 and 2023. It contributed to the economy’s 2.8 percent annualized growth pace in the April-June quarter.
After accounting for inflation based on the producer price data, economists estimated that shipments were running below their second-quarter average. With the Institute for Supply Management as well as the regional Fed manufacturing surveys still pointing to weak orders, a contraction in business spending on equipment is a possibility, economists said.
“The upshot is that equipment investment is currently on track to post a modest 1.2 percent annualized gain in the third quarter, with overall GDP growth at 1.8 percent ,” said Paul Ashworth, chief North America economist at Capital Economics.
