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U.S. durable goods orders data points to weak business spending

Posted by: Admin | Posted on: July 27th, 2016 | 0 Comments


WASHINGTON New orders for U.S. manufactured capital goods rose less than expected in June amid weak demand for machinery and a range of other goods, suggesting a prolonged downturn in business spending.

Business investment remains soft despite data ranging from retail sales to housing suggesting that the economy has regained speed after growth almost stalled early in the year.

The Commerce Department said on Wednesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.2 percent last month after decreasing 0.5 percent in May.

“It suggests that the disappointing performance in business investment activity goes beyond the slackening in capital goods demand in the energy sector, and it underscores the continued sluggishness in this segment of the U.S. economy,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

Federal Reserve officials have flagged feeble business spending as a source of concern and sustained weakness could be one of the factors that could encourage the U.S. central bank to keep interest rates unchanged at the end a two-day meeting later on Wednesday.

Economists polled by Reuters had forecast the so-called core capital goods orders rising 0.3 percent last month.

Prices for U.S. government bonds rose on the data, while the dollar was little changed against a basket of currencies. U.S. stocks were trading higher, boosted by strong financial results from Apple (AAPL.O).

Overall orders for durable goods, items ranging from

toasters to aircraft that are meant to last three years or more,

tumbled 4.0 percent last month, the biggest drop since August 2014, after declining 2.8 percent in May.

SUBDUED BUSINESS INVESTMENT

Business spending has weakened since late 2015, in part as lower oil prices squeezed profits in the energy sector, forcing companies to slash capital spending budgets. Uncertainty over global demand and the upcoming U.S. presidential election are also making companies cautious about spending, economists say.

Prospects for a pick-up in business spending are less encouraging against the backdrop of lackluster corporate profits.

“The bad news is not over. Everything conspiring against the durables sector in 2015 will remain working against it for at least the balance of 2016,” said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.

“The hope for 2017 is that the adjustment processes start to wind down and produce less drag and token recovery, but that feels like a vampire drinking your blood slower.”

Shipments of core capital goods, which are used to calculate equipment spending in the government’s gross domestic product measurement, fell 0.4 percent last month after sliding 0.5 percent in May. That suggests business spending probably fell again in the second quarter.

Should spending on equipment drop in the second quarter, that would be the first time since the 2007-09 recession that outlays would have contracted for three straight quarters.

According to a Reuters survey of economists, the government will likely report on Friday that GDP increased at a 2.6 percent annual rate in the second quarter after rising at a 1.1 percent pace in the January-March period.

In June, orders for electrical equipment, appliances and components increased 0.8 percent. But orders for machinery dipped 0.1 percent and primary metals dropped 1.3 percent. Computers and electronic products orders declined 2.2 percent, the biggest fall since April 2015.

Orders for transportation equipment slumped 10.5 percent, the largest drop since August 2014, as bookings for aircraft plunged 58.8 percent. Orders for automobiles rose 2.6 percent.

Pointing to sustained weakness in business spending, unfilled core capital goods orders fell 0.2 percent in June after slipping 0.4 percent in May.

A separate report from the National Association of Realtors showed contracts to purchase previously owned homes rose 0.2 percent in June after declining 3.7 percent in May.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/NHfkoEzDhsw/us-usa-economy-idUSKCN1071IS

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