US business spending digging out of deep hole

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    WASHINGTON- New orders for key US-made capital goods increased more than expected in August and shipments raced to their highest level in nearly six years, suggesting a rebound in business spending on equipment was underway after a prolonged slump.

    The show of confidence by businesses in the report from the Commerce Department on Friday also bolstered expectations for a sharp turnaround in economic activity in the third quarter, thanks to government money, after it was hammered by the COVID-19 pandemic in the first half of the year.

    But fiscal aid is running out and new coronavirus cases are rising in the country, clouding the fourth-quarter picture.

    Durable goods seen on sale in a store in Los Angeles, California. Economic activity rebounded sharply over the summer in US as businesses reopened after mandatory closures in mid-March to slow the spread of the coronavirus. (Reuters Photo)

    Federal Reserve Chair Jerome Powell last week stressed the need for more fiscal stimulus, telling lawmakers on Thursday that it could make the difference between continued recovery and a much slower economic slog. Another rescue package appears unlikely before the Nov. 3 presidential election.

    “The recovery in capex is not screeching to a halt,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “Equipment spending will be a key contributor to the third-quarter’s bounce back in GDP.”

    Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.8 percent last month to the highest level since July 2018.

    Data for July was revised up to show these so-called core capital goods orders increasing 2.5 percent instead of 1.9 percent as previously reported. Core capital goods orders are now above the their pre-pandemic level.

    Economists polled by Reuters had forecast orders for these goods gaining 0.5 percent in August.