- Drop in bookings follows best back-to-back reading since 2014
- Demand for machinery leads gains over past three months
The momentum in orders for business equipment stalled in August following gains the prior two months as U.S. investment took a breather amid volatility in financial markets and concerns that global growth is slowing.
Bookings for non-military capital goods excluding aircraft fell 0.2 percent last month after rising 2.1 percent in July, data from the Commerce Department showed Thursday in Washington. Orders for all durable goods -- items meant to last at least three years -- dropped 2 percent, reflecting declines in defense and aircraft.
The relatively steady reading in capital goods bookings following the best back-to-back gains in more than a year signals companies waiting to assess prospects for U.S. demand as global growth slows and financial markets turn volatile. A strong American consumer, powered by more jobs, growing incomes and low inflation, will be needed to help support the outlook for growth in the second half of the year.
“The net of the last couple months is still up a little bit, and it does look like both capital goods orders and shipments are on track for a gain in the third quarter,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, and the best forecaster of durable goods over the past two years, according to data compiled by Bloomberg. Still, “when you look at the U.S. economy right now, the export-oriented manufacturing sector does look quite weak.”
The median forecast of 79 economists surveyed by Bloomberg estimated bookings for total durable goods would fall 2.3 percent, with projections ranging from a 5 percent drop to a 1.5 increase. The July reading was revised from a prior estimate showing a 2.2 percent gain.
Shipments of non-military capital goods excluding aircraft, which are used to calculate gross domestic product, decreased 0.2 percent in August after rising 0.5 percent the month before.
Commercial aircraft orders dropped 5.9 percent in August after falling 8.7 percent a month earlier. Boeing Co., the Chicago-based aerospace company, said it received 52 bookings for planes in August, down from the 101 orders placed the previous month. Industry data don’t always correlate with the government statistics on a month-to-month basis.
Demand for automobiles, which has boosted the durable goods figures in recent months as Americans tap cheap financing to replace their aging vehicles, also took a breather in August, falling 1.6 percent. Bookings rose 4.9 percent in July. Industry data from Ward’s Automotive Group showed cars and light trucks sold at a 17.7 million annualized rate in August, the best pace since July 2005.
Excluding transportation equipment, which often swings from month to month, durable-goods bookings were little changed, the report showed. Demand for defense equipment dropped 24.3 percent, reversing the prior month’s gain.
Stronger investment in capital equipment would be a welcome boost for U.S. growth, which has relied on a solid pace of consumer spending this year.
Business investment has been “moderate, held down in part by a significant contraction in oil-drilling activity as a result of the large drop in oil prices over the past year,” Federal Reserve Chair Janet Yellen said last week at the conclusion of a two-day monetary policy meeting where interest rates remained unchanged. The outlook for investment spending is “decent,” she said later in the press conference.