U.S. Markets

U.S. core capital goods orders decline for second straight month

WASHINGTON, (Reuters) - New orders for key U.S.-made capital goods fell for a second straight month in September and shipments were unchanged, suggesting that growth in business spending on equipment moderated further in the third quarter.

U.S. made plywood is shown for sale in Los Angeles, California, U.S., April 26, 2017. REUTERS/Mike Blake

The Commerce Department said on Thursday that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 percent last month amid weakening demand for fabricated metals and electrical equipment, appliances and components.

Data for August was revised up to show the so-called core capital goods orders decreasing 0.2 percent instead of the previously reported 0.9 percent decline.

Economists polled by Reuters had forecast core capital goods orders rising 0.5 percent last month. Core capital goods orders increased 6.6 percent on a year-on-year basis.

Shipments of core capital goods were unchanged in September for a second straight month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

The Commerce Department said it could not isolate the impact of Hurricanes Florence and Michael on the data.

Business spending on equipment slowed in the second quarter after growing at a brisk pace for more than a year. It is expected to make a modest contribution to GDP growth in the third quarter. Business spending on equipment is being underpinned by the Trump administration’s $1.5 trillion tax cut package, which included a sharp reduction in the corporate tax rate.

But lower taxes are being offset by the administration’s “America First” policies, which have led to a bitter trade war between the United States and China as well as tit-for-tat tariffs with other major trade partners.

Companies including Caterpillar Inc CAT.N, 3M Co MMM.N and Ford Motor Co F.N have complained about rising manufacturing costs as a result of the duties on imported steel and other raw materials.

In its Beige Book published on Wednesday, the Federal Reserve said “manufacturers reported raising prices of finished goods out of necessity as costs of raw materials such as metals rose, which they attributed to tariffs.”

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 0.8 percent in September as demand for transportation equipment rose 1.9 percent. That followed a 4.6 percent jump in durable goods orders in August.

Orders for motor vehicles and parts rose 1.3 percent last month. Orders for defense aircraft surged 119.1 percent, offsetting a 17.5 percent drop in bookings for civilian aircraft.

Reporting by Lucia Mutikani Editing by Paul Simao