Increased US business equipment spending eases recession fears

WASHINGTON (Reuters) – New orders for U.S.-made capital goods rose in July, but the pace slowed from the previous month, suggesting a modest recovery in business spending this quarter. .

A report from the Department of Commerce on Wednesday also showed strong growth in shipments of these goods. Some of the uptick is due to businesses spending more as prices rise, but the data show that the economy continues to grow at a moderate pace and is no longer in recession. It was one sign.

“The lack of a sustained decline in orders is a reflection of tighter financial markets, weaker sentiment and fears of a recession,” said Ryan Sweet, senior economist at Moody’s Analytics in Westchester, Pennsylvania. Regardless, it suggests that companies are still investing.”

Orders for non-defense capital goods, excluding aircraft, have been a key indicator of business spending plans, rising 0.4% last month. The June data has been revised higher to show these so-called core capital goods orders showing him a 0.9% advance, rather than his previously reported 0.7%. Economists polled by Reuters had expected orders for core capital goods to rise by 0.3%.

The report added data on retail sales, industrial production and the labor market to highlight the economic resilience. Orders are slowing as the Federal Reserve’s aggressive monetary policy campaign to fight inflation weakens demand. Fed Chairman Jerome Powell’s speech at the annual World Central Banks meeting in Jackson Hole, Wyoming, on Friday reveals whether the U.S. central bank can engineer an economic slowdown without triggering a recession. There is a possibility that

Manufacturing, which accounts for 11.9% of the economy, is supported by still low inventories of long-lasting products like automobiles.

Orders for machinery, metal processing products, personal computers, and electronic products increased in July. However, orders for electrical equipment, home appliances and components fell, as did orders for primary metals.

Wall Street stocks were trading high. The dollar was little changed against a basket of currencies. US Treasury prices fell.

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Core capital goods shipments rose 0.7% after rising 0.8% in June. Shipments of core capital goods are used to calculate capital expenditures in gross domestic product measurements.

Rising prices make it difficult to get an accurate reading of equipment spending data that is not adjusted for inflation. There is also uncertainty about which price index the government will use to adjust the data for inflation.

The private capital equipment producer price index rose 0.5% in July. This means that last month’s inflation-adjusted core capital goods orders turned negative. However, shipments have outpaced inflation and capex is on a modest growth trajectory early in the third quarter.

“The decline in commodity prices suggests a possible decline in the capital investment price index in the third quarter, resulting in nominal strength,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York. suggests that this could lead to measured real growth.”

Capital spending fell by 2.7% annualized in the second quarter, the most in two years. This, combined with a slower pace of inventory build-up compared to the last two quarters, led to a drag on GDP. The economy contracted he 1.3% in the first half.

Orders for durable goods, from toasters to aircraft, with a shelf life of more than three years, were flat in July after rising 2.2% in June.

It was weighed down by a 0.7% decline in transport equipment orders. Civil aircraft orders he soared 14.5%. But those were offset by his 49.8% plunge in orders for defense aircraft. Boeing (BA.N) reported on its website that it had received orders for 130 aircraft compared to 50 in June.

Auto and parts orders increased by 0.2% last month. Automobile production continues to be constrained by the worldwide shortage of semiconductor chips. Shipments of durable goods increased 0.4% after he increased 0.3% in June. Unfilled durable goods orders were up 0.7% and inventories were up 0.2%.

“Inventories are particularly difficult to measure during periods of inflation, but reported inventory-to-sales ratios have increased since last year,” said Conrad Dequadros, senior economic adviser at Breen Capital in New York. , supporting the view that inventories remain tight.”

The sharpest rise in interest rates since the 1980s has had a major impact on the housing market, while manufacturing has stagnated. In a separate report on Wednesday, the National Association of Realtors said the pending home sales index based on signed contracts fell 1.0% last month to 89.8, the lowest level since April 2020. . Contracts have declined in eight of the last nine months. . read more

However, housing prices are still rising due to the lack of affordable housing, and the housing market is unlikely to collapse.

“There’s no risk of a housing crash,” said Nicole Bashaw, a senior economist at Zillow in Seattle. “The inability to buy a home should not be confused with the lack of desire to buy one.”

Reported by Lucia Mutikani. Edited by Nick Zieminski and Paul Simao

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