U.S. Capital Goods Orders Rise Unexpectedly in August

WASHINGTON (Reuters) – New orders for key U.S.-manufactured capital goods unexpectedly rose in August, although business spending on equipment seems to be losing momentum in the third quarter.

Non-defense capital goods orders, excluding aircraft, which serve as a closely watched proxy for business spending plans, increased by 0.2% last month after a downwardly revised 0.2% drop in July, according to the Commerce Department’s Census Bureau.

Economists surveyed by Reuters had anticipated that core capital goods orders would remain unchanged following a previously reported 0.1% dip in July. In August, core capital goods orders saw a year-on-year gain of 0.3%.

Higher borrowing costs have constrained business investment, yet a loosening of financial conditions as the Federal Reserve prepared to cut interest rates stimulated equipment spending in the second quarter.

Last week, the U.S. central bank cut its overnight benchmark interest rate by 50 basis points to a range of 4.75%-5.00%, marking the first reduction in borrowing costs since 2020. The Fed had increased rates by 525 basis points over 2022 and 2023.

Core capital goods shipments edged up 0.1% after falling 0.4% in July, while non-defense capital goods orders fell by 1.3% after a significant 42.1% surge in July.

Shipments of these goods decreased by 1.6% following a 4.8% rise in July. These shipments contribute to the business spending component in the gross domestic product report.

Orders for durable goods—items expected to last three years or more—remained unchanged last month after rising 9.9% in July. Orders for electrical equipment, appliances, components, machinery, fabricated metal products, and electronic products saw increases.

However, transportation equipment orders declined by 0.8% after a 34.6% surge in July, with motor vehicles and parts orders up by 0.2%.

Notably, commercial aircraft orders and parts dropped by 7.5%; Boeing reported receiving only 22 orders last month, a decrease from 72 in July. The outlook for aircraft orders is bleak as Boeing addresses multiple challenges, including a significant strike.

The head of the Federal Aviation Administration informed a U.S. Senate panel that Boeing must resolve a series of safety issues before being allowed to increase 737 MAX production.