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.
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.