New orders for key U.S.-made capital goods were unexpectedly flat in July amid supply constraints, suggesting a moderation in business spending on equipment at the start of the third quarter after robust growth over the past year.
Still, business investment in equipment remains strong, with the report from the Commerce Department on Wednesday showing shipments of these capital goods accelerating last month. Investment in equipment is expected to help to offset cooling consumer spending and keep the economy on a solid growth path this quarter.
"The underlying details suggest that growth in business equipment investment will slow in the third quarter, but it remains strong by past standards," said Andrew Hunter, an economist at Capital Economics.
"Although we expect weaker consumption growth to drive a sharper slowdown in overall GDP growth, with many firms running up against capacity constraints and interest rates still low, the outlook for investment looks relatively favorable."
Last month's unchanged reading in orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, followed an upwardly revised 1.0% increase in June. These so-called core capital goods orders were previously reported to have advanced 0.7%.
Economists polled by Reuters had forecast core capital goods orders climbing 0.5%.
Shipments of core capital goods rose 1.0% last month after increasing 0.6% in June. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.
U.S. stocks opened lower after a record close for the S&P 500 and the Nasdaq in the previous session. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.
Business spending on equipment notched four straight quarters of double-digit growth, helping to power the economy's recovery from a short and sharp COVID-19 pandemic recession, driven by strong demand for goods, thanks to record-low interest rates and massive fiscal stimulus.
July's slowdown in core capital goods orders likely reflects supply chain bottlenecks. There were decreases in orders for computers and electronic products. An ongoing global semiconductor shortage has hampered production of these goods.
Orders for electrical equipment, appliances and components also fell. But orders for primary metals, machinery and fabricated metal products increased.
The resilience is welcome amid signs that consumer spending is cooling as the Delta variant of the coronavirus causes a resurgence in new infections across the country.
Retail sales fell in July in part because of motor vehicle shortages. Credit card data suggests spending on services like airfares, cruises as well as hotels and motels has been slowing.
Economists at Goldman Sachs last week cut their third-quarter GDP growth estimate to a 5.5% annualized rate from a 9% pace. Bank of America Securities slashed its GDP growth estimate for this quarter to a 4.5% pace from a 7.0% rate. The economy grew at a 6.5% rate in the second quarter, pulling the level of GDP above its peak in the fourth quarter of 2019.
Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dipped 0.1% in July after rising 0.8% in June. They were pulled down by a 2.2% decline in orders for transportation equipment, which followed a 1.4% increase in June.
Orders for civilian aircraft tumbled 48.9%. Boeing reported on its website that it had received 31 aircraft orders last month compared to 219 in June. Orders for motor vehicles and parts rose 5.8% in July after climbing 1.8% in June.
Motor vehicle production continues to be restrained by the global chip shortage. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
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