US core capital goods register big drop
WASHINGTON, ( Reuters) – New orders for key US- made capital goods dropped the most in eight months in December, suggesting business investment has contracted further in the fourth quarter and is dragging on economic growth.
Business spending remains a weak spot in the economy, while Housing is regaining momentum in response to the US Federal Reserve’s interest rate cuts last year. Officials from the Reserve were scheduled to start a two- day policy meeting on Tuesday.
They are expected to reiterate the Fed’s desire to keep rates unchanged at least through this year. Weak business investment and the resulting slump in manufacturing captured the attention of officials who blame this on trade tensions, especially the US’s trade war with China and an uncertain global economic growth outlook.
Though tensions have eased with this month’s signing of a Washington- Beijing trade deal, Boeing continues to loom over manufacturing. Boeing this month suspended production of its troubled 737 MAX jetliner, grounded last March following two fatal crashes.
The Commerce Department said on Tuesday that orders for non- defense capital goods excluding aircraft fell 0.9% last month, the largest decrease since April, as demand declined.
Revised data for November showed core capital goods orders edging up 0.1% instead of gaining 0.2% as previously reported. While core capital goods orders rose 0.8% in 2019, shipments decreased 0.4% last month, following an unrevised 0.3% decline in November.
Business investment contracted for two straight quarters and will likely remain in the red in the fourth quarter, decreasing GDP growth. The Atlanta Fed is forecasting GDP to rise at a 1.8% annualized rate this quarter, following 2.1% growth from July to September.
The government will publish its snapshot of fourth- quarter GDP on Thursday. Investment was weighed down by steep spending declines on equipment and nonresidential structures like gas and oil well drilling.
This has pushed manufacturing, 11% of the economy, into recession. Capital expenditure was undercut by the US- China trade war, hurting confidence.
Boeing’s biggest assemblyline halt in more than 20 years is expected to wreak havoc with the supply chain. Its largest supplier, Spirit AeroSystems Holdings, announced early this month that it planned to lay off over 20% of the workforce at its Wichita, Kansas base.
Economists estimate the production suspension could slice over half a percentage point from first- quarter GDP growth, due to a smaller inventory build. Though airlines continue to submit orders, there have been no deliveries, causing an inventory rise at factories.
Orders for durable goods, ranging from toasters to aircraft, rebounded 2.4% in December, after November’s 3.1% decrease. This was boosted by a 7.6% surge in transportation equipment orders, the largest increase since August 2018, following an 8.3% November drop.
Defense aircraft and parts orders soared 168.3% last month, offsetting a 74.7% plunge in civilian aircraft demand. Boeing reported that it had received only three commercial aircraft orders in December, down from 63 in November. December is normally a strong month for aircraft orders.