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 have lost momentum in the third quarter.

Non-defense capital goods orders, excluding aircraft, a closely monitored indicator of 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 report on Thursday.

Economists polled by Reuters had predicted these core capital goods orders would remain unchanged after a previously reported 0.1% dip in July. Core capital goods orders saw a 0.3% increase year-on-year in August.

Higher borrowing costs have constrained business investments; however, looser financial conditions, as the Federal Reserve prepared to cut interest rates, boosted spending on equipment in the second quarter.

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

Core capital goods shipments edged up by 0.1% after a dip of 0.4% in July. Meanwhile, non-defense capital goods orders saw a decrease of 1.3%, following a substantial increase of 42.1% in July.

Shipments of these goods fell by 1.6% after increasing by 4.8% in July. Shipments factor into the calculation of the business spending on equipment in the gross domestic product (GDP) report.

Orders for durable goods, which include items lasting three years or more, remained unchanged last month after a significant 9.9% surge in July.

There were increases in orders for electrical equipment, appliances and components, machinery, fabricated metal products, as well as computers and electronic products.

However, orders for transportation equipment decreased by 0.8% following a 34.6% rise in July. Orders for motor vehicles and parts rose by 0.2%.

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 faces multiple challenges, including a significant strike.

The head of the Federal Aviation Administration informed a U.S. Senate panel on Wednesday that Boeing must rectify several safety issues before permission is granted to ramp up 737 MAX production.