Capital Goods Orders in U.S. Drop for First Time in Three Months

  • Bookings minus defense hardware, planes fell 0.4% in November
  • Shipments of core equipment decline after bigger October drop

Orders for U.S. capital goods dropped in November for the first time in three months, showing businesses began tempering new investment after a third-quarter surge.

Bookings for non-military equipment excluding planes declined 0.4 percent after a 0.6 percent October gain that was about half as much as initially reported, data from the Commerce Department showed Wednesday. The value of orders for all durable goods -- items meant to last at least three years -- was little changed.

The pause in equipment orders represents one of several challenges facing American producers, who are contending with a strong dollar, tepid overseas demand and a recent inventory overhang. At the same time, resilient consumer demand that includes steady growth in auto sales is helping soften the blow to manufacturers.

“Business investment is still somewhat shaky, given the state of the manufacturing sector and the fact that it’s been underperforming the rest of the economy,” said Gennadiy Goldberg, U.S. rates strategist at TD Securities LLC in New York. “But given the state of the overall economy and the fact that the Federal Reserve sees it strong enough to start hiking rates, you’re going to get improvement over the coming months.”

Consumer Spending

Household spending in November climbed 0.3 percent, the most in three months, separate data from the Commerce Department showed on Wednesday. The gain was driven by a 1.1 percent increase in outlays for durable goods such as cars and appliances.

The median estimate of economists in a Bloomberg survey called for a 0.2 percent decrease in core capital goods orders for November after a previously reported 1.3 percent October gain. Bookings for all durables were projected to fall 0.6 percent.

Shipments of non-defense capital goods excluding aircraft, which are used in calculating gross domestic product, decreased 0.5 percent last month after a revised 1 percent slump in October that was twice the previously estimated decline. The figures indicate fourth-quarter capital spending will cool after a jump in the previous three months.

Spending on equipment increased at a 9.9 percent annualized pace in the third quarter, the strongest since the same period last year, Commerce Department figures showed Tuesday in its final estimate of GDP.

Factories are continuing to make progress reducing stockpiles that built up earlier in the year, Wednesday’s report showed. Durable goods inventories dropped 0.3 percent for a second month.

Companies in November placed fewer orders for primary metals, machinery and computers. Demand rose for communications equipment, motor vehicles and electrical gear.

Bookings fell for commercial aircraft after a surge in the prior month. Industry data doesn’t always correlate with the government statistics on a month-to-month basis. Boeing Co. said it received 89 orders in November, the most since July and up from 59 the prior month.

Excluding transportation equipment demand, which is volatile from month to month, bookings decreased 0.1 percent in November after a 0.5 percent gain the prior month.
Orders for military equipment jumped 44.4 percent last month, the most since April 2014. Excluding defense hardware, durable goods bookings fell 1.5 percent.

While business spending on equipment picked up in the third quarter, a slump in oil prices has caused energy exploration and production firms to cut back. What’s more, some companies have put investment plans on hold as they assess a dimmer global growth outlook.

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