By Lucia Mutikani WASHINGTON (Reuters) – Orders for long-lasting U.S. manufactured goods rose in August as an increase in machinery and other products offset a drop in civilian aircraft, and business spending on equipment appeared to regain momentum after faltering early in the third quarter. The report from the Commerce Department on Wednesday also showed […]
US durable goods orders beat expectations in boost to economy in third-quarter
By Lucia Mutikani
WASHINGTON (Reuters) – Orders for long-lasting U.S. manufactured goods rose in August as an increase in machinery and other products offset a drop in civilian aircraft, and business spending on equipment appeared to regain momentum after faltering early in the third quarter.
The report from the Commerce Department on Wednesday also showed shipments of capital goods rebounding sharply last month, a sign of resilience in both business investment and the overall economy despite the Federal Reserve’s aggressive monetary policy tightening. The surge in shipments compensated for downward revisions to July’s data, prompting some economists to raise their gross domestic product growth estimates for this quarter.
But others viewed the rise in the value of orders and shipments as having been flattered by higher prices as inflation picked up in August.
“While inflation and downward revisions to July data give a reality check to the report, strength everywhere else in the economy suggests third-quarter growth is on solid footing regardless of tepid equipment spending,” said Will Compernolle, macro strategist at FHN Financial in New York.
“If nothing else, the resilience of business investment is one more reason the Fed can be cautiously optimistic that its rapid rate hikes have not tipped the economy into a recession.”
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, gained 0.2% last month. Data for July was revised lower to show orders for these goods decreasing 5.6% instead of 5.2% as previously reported.
Economists polled by Reuters had forecast durable goods orders falling 0.5% last month. Orders increased 4.2% year-on-year in August. Machinery orders rose a solid 0.5%, while bookings for electrical equipment, appliances and components jumped 1.1%. Orders for computers and electronic products gained 0.3%. Demand for fabricated metal products increased 0.5%.
But orders for primary metals fell 0.6%. Transportation equipment orders slipped 0.2%, weighed down by a 15.9% tumble in civilian aircraft. Boeing reported on its website that it had received 45 orders for civilian aircraft versus 52 in July.
Motor vehicle and parts orders climbed 0.3%. A strike by the United Auto Workers union against General Motors Co, Stellantis and Ford Motor could weigh on orders and shipments in September and potentially be a drag on business investment in the fourth quarter if it is not resolved soon.
Durable goods inventories rose 0.2%, while unfilled orders increased 0.4%. The data suggested that manufacturing, which makes up 11.1% of the economy, was muddling along, despite surveys suggesting that the sector was mired in recession.
The Institute for Supply Management’s manufacturing PMI has contracted for 10 straight months, though the pace has slowed in recent months. Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range as it battles inflation.
Stocks on Wall Street were mostly lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
SOLID EQUIPMENT INVESTMENT
“Today’s estimates reinforce ongoing resilience in the manufacturing sector, reflecting restocking demand and what is shaping up to be another solid quarter for equipment investment,” said Jonathan Millar, senior economist at Barclays in New York.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, surged 0.9%. That was the largest gain since January and followed a downwardly revised 0.4% decline in the prior month.
These so-called core capital goods orders were previously reported to have edged up 0.1% in July. They increased 2.1% year-on-year in August.
Core capital goods shipments rebounded 0.7% after falling 0.3% in July. Shipments of nondefense capital goods soared 1.2%, reversing the prior month’s decline.
These shipments feed into the calculation of equipment spending in the gross domestic product report. Economists at Goldman Sachs raised their third-quarter GDP growth estimate to a 3.2% annualized rate from 3.0%. But some economists expect business spending on equipment to contract this quarter.
Equipment spending rebounded in the second quarter after two straight quarterly declines, contributing to the economy’s 2.1% growth pace during that period.
“Although durable goods orders and core capital goods orders and shipments were modestly above expectations, when adjusted for price changes they point to relatively flat order growth in the third quarter and a small decline in business equipment spending,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
“However, there are no signs here that the weakness in manufacturing activity is intensifying in the third quarter.”
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)