Orders for U.S. Capital Goods Rose for a Second Month in July

  • Back-to-back advances are the first since start of 2015
  • Shipments of capital equipment decline for a third month

Orders for U.S. business equipment climbed for a second month in July, the first back-to-back advance since early 2015 and a sign companies are becoming more willing to boost spending, a Commerce Department report showed Thursday in Washington.

Key Points

  • Orders for non-military equipment excluding aircraft rose 1.6 percent (forecast was for 0.2 percent gain), most since January, after a 0.5 percent increase
  • Shipments of such capital goods unexpectedly fell 0.4 percent (forecast was for 0.3 percent gain) after a downwardly revised 0.5 percent June drop
  • Bookings for all durable goods jumped 4.4 percent (forecast was for 3.4 percent gain)
  • Inventories of durable goods rose 0.3 percent, most since December

Big Picture

A second monthly gain in capital goods bookings signals shipments of such equipment, which are used to calculate GDP, will pick up after weakening for a third straight month in July. Steadier orders would mark an improvement in demand for capital spending that Federal Reserve policy makers have described as “soft”. Investment in equipment has subtracted from GDP for the last three quarters.

Economist Takeaways

“It’s encouraging, but it’s one month,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. “We have to see orders translate into actual shipments. The rest of the domestic economy is doing well, so as long as we see capex stabilize, that will help growth.”
Regarding shipments of capital goods excluding planes and military hardware, “The starting point for the third quarter is a little soft,” he said.

The Details

  • Unfilled orders for durable goods fell 0.1 percent after slumping 0.9 percent
  • Gain in inventories last month reflected in part a higher value of metals
  • Bookings picked up in several categories, including computers, machinery, electrical equipment and primary and fabricated metals
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