WASHINGTON: Neworders for key US-made capital goods rose modestly in July while shipments fellby the most in nearly three years, pointing to continued weakness in businessinvestment and a slowdown in economic growth early in the third quarter.Meanwhile, a continued rebound in sales of American planes lifted the USdurable goods sector for the second straight month in July, according to datareleased yesterday. But the increase in sales of big-ticket US-made goods, thelargest jump in nearly a year, hid weaker-than-expected results in the rest ofthe sector amid President Donald Trump's worsening trade war.
A measure widelyseen as a proxy for business investment, which has suffered since late lastyear, rose for the third month in a row, but at a sluggish pace and economistssaid the numbers clearly point to a slowing trend. New orders for durable goodsrose by a better-than-expected 2.1 percent in July to $250.4 billion, thelargest increase since August of last year, according to the CommerceDepartment.
But June's resultwas revised downward slightly from a prior estimate. And so far this year,orders are up a paltry 0.3 percent over the same period in 2018. Coming againstthe backdrop of an escalation in trade tensions, the report from the CommerceDepartment yesterday could provide more ammunition for the Federal Reserve tocut interest rates again next month.
Fed Chair JeromePowell told a conference of central bankers last week that trade policy uncertaintyseems to be playing "a role in the global slowdown and in weakmanufacturing and capital spending in the United States." Though Powelldescribed the economy as being in a "favorable place," he reiteratedthat the US central bank would "act as appropriate" to keep thelongest economic expansion in history on track. The Fed lowered its short-terminterest rate by 25 basis points last month for the first time since 2008,citing trade tensions and slowing global growth. Financial markets have fully pricedin another quarter-percentage-point cut at the Fed's Sept. 17-18 policymeeting.
Orders fornon-defense capital goods excluding aircraft, a closely watched proxy forbusiness spending plans, increased 0.4 percent last month, the government said,driven by strong demand for electrical equipment, appliances and components.Data for June was revised down to show these so-called core capital goodsorders advancing 0.9 percent instead of surging 1.5 percent as previouslyreported. Economists polled by Reuters had forecast core capital goods orderswould fall 0.1 percent in July. Core capital goods orders increased 1.5 percenton a year-on-year basis.
Shipments of corecapital goods fell 0.7 percent last month, the biggest drop since October 2016.Core capital goods shipments are used to calculate equipment spending in thegovernment's gross domestic product measurement. Data for June was revised downto show core capital goods shipments were unchanged instead of rising 0.3percent as previously reported. US stock index futures held gains after therelease of the data while yields on US Treasuries were largely unchanged. Thedollar was trading higher against a basket of currencies.
Shipments fall
Businessinvestment has been weak, largely blamed on the Trump administration's tradewar with China, which is taking a toll on global economies and USmanufacturing. President Donald Trump on Friday announced a new round oftariffs on Chinese imports, hours after Beijing unveiled retaliatory tariffs on$75 billion worth of US goods.
Businessinvestment contracted in the second quarter for the first time since the firstquarter of 2016. Weak business investment is underscored by manufacturing,where output has contracted for two straight quarters. Manufacturing, whichaccounts for about 12 percent of the economy, is also being undercut by aninventory bloat and design problems at Boeing. In July, orders for electricalequipment, appliances and components jumped 1.1 percent.
But orders formachinery fell 0.6 percent. There was also declines in orders for primarymetals and fabricated metal products. Overall orders for durable goods, itemsranging from toasters to aircraft that are meant to last three years or more,increased 2.1 percent in July, the most since August 2018, after rising 1.8percent in the prior month. Orders for transportation equipment jumped 7.0percent after gaining 4.1 percent in June. Motor vehicles and parts orders rose0.5 percent last month. Orders for non-defense aircraft and parts increased47.8 percent. - Agencies