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Tags: Core | Capital | Goods | Orders

Core Capital Goods Orders Fall as Manufacturing Recovery Stays Intact

Core Capital Goods Orders Fall as Manufacturing Recovery Stays Intact

 (Getty/Bill Pugliano)

Monday, 27 February 2017 12:54 PM EST

New orders for key U.S.-made capital goods unexpectedly fell in January after three straight months of strong gains, but did little to change views that manufacturing was recovering from a prolonged downturn amid rising commodity prices.

Last month's drop is likely to be temporary as business confidence has surged in recent months on promises by the Trump administration to cut corporate taxes and ease regulations. In addition domestic demand is firming.

"We remain cautiously optimistic as there are limitations to what the president can do, but even minimal improvement from an otherwise declining trend established over the past near-decade is a large step in the right direction," said Lindsey Piegza, chief economist at Stifel Fixed Income in Chicago.

The Commerce Department said on Monday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.4 percent after an upwardly revised 1.1 percent increase in December.

These so-called core capital goods were previously reported to have gained 0.7 percent in December. There were declines in orders for primary metals and electrical equipment, appliances and components, as well as computers and electronic products. Orders for machinery and fabricated metal products rose.

Economists polled by Reuters had forecast core capital goods rising 0.5 percent last month. A separate report on Monday showed contracts to purchase previously owned homes fell to a one-year low in January amid a dearth of properties for sale.

This suggests that home resales could decline in February after hitting a 10-year high in January. Prices for U.S. government bonds were trading lower, while stocks on Wall Street rose to record highs. The dollar slipped against a basket of currencies.

The recent surge in business confidence spilled over into investment on capital goods. January's drop in core capital goods orders likely reflects caution among businesses as they await details of the proposed stimulus.


President Donald Trump has promised a "phenomenal" tax plan that the White House said would include tax cuts for businesses and individuals. Details on the plan remain vague, though Treasury Secretary Steven Mnuchin said last week that he wanted the tax relief enacted by August. Trump told state governors on Monday that he would talk about his plans for infrastructure spending in a speech to Congress on Tuesday.

"It seems like expectations for fiscal stimulus are beginning to ease a little bit," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania.

"It's not about the size of the fiscal stimulus but the timing of when we get the corporate tax reforms, personal income tax cuts and infrastructure spending. It's very unclear when these polices are going to get enacted."

Business investment picked up in the fourth quarter, with spending on equipment increasing at a 3.1 percent rate after four straight quarterly declines.

Manufacturing, which accounts for about 12 percent of the U.S. economy, was in a slump for more than a year as a collapse in oil prices undercut demand for machinery. A strong dollar, however, remains a challenge for manufacturers as it makes their goods less competitive on overseas markets.

Shipments of core capital goods fell 0.6 percent last month after jumping 1.6 percent in December. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

A 6.0 percent surge in demand for transportation equipment buoyed overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, which leapt 1.8 percent last month. Durable goods orders decreased 0.8 percent in December.

Last month's surged reflected a 69.9 percent jump in civilian aircraft orders. The surge came even as Boeing reported on its website that it had received orders for only 26 aircraft last month. Economists believe not all of the 290 aircraft ordered in December were reflected in the durable goods orders report for that month.

Orders for defense aircraft soared 59.9 percent. Pointing to continued manufacturing recovery, unfilled orders of core capital goods - a proxy for production in the pipeline - increased 0.5 percent, a seventh consecutive monthly advance.

"There is some kind of core strength in manufacturing output, that's what the continuing gains in unfilled orders show," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

© 2023 Thomson/Reuters. All rights reserved.

New orders for U.S.-made capital goods unexpectedly fell in January after three straight months of strong gains, but did little to change views that manufacturing was recovering from a prolonged slump amid rising commodity prices.
Core, Capital, Goods, Orders
Monday, 27 February 2017 12:54 PM
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