US durable goods re­port hints at spend­ing pickup Ap­pli­ca­tions for un­em­ploy­ment aid rise

Kuwait Times - - BUSINESS -

New or­ders for US man­u­fac­tured cap­i­tal goods re­bounded in Oc­to­ber, driven by ris­ing de­mand for ma­chin­ery and a range of other equip­ment, point­ing to a ten­ta­tive pickup in busi­ness in­vest­ment. While other data yes­ter­day showed a jump last week in the num­ber of peo­ple fil­ing for un­em­ploy­ment ben­e­fits, the trend in claims re­mained con­sis­tent with a tight­en­ing la­bor mar­ket. The re­ports were sup­port­ive of views that the Fed­eral Re­serve will raise in­ter­est rates next month. The Com­merce De­part­ment said non-de­fense cap­i­tal goods or­ders ex­clud­ing air­craft, a closely watched proxy for busi­ness spend­ing plans, rose 0.4 per­cent af­ter de­clin­ing 1.4 per­cent in Septem­ber. These so-called core cap­i­tal goods or­ders have now in­creased in four of the last five months.

“The re­port re­in­forces an emerg­ing re­cov­ery in busi­ness in­vest­ment, helped by a bot­tom­ing out in the oil and gas sec­tor,” said Brit­tany Bau­mann, an economist at TD Se­cu­ri­ties in Toronto.

The re­ports joined bullish data on hous­ing starts, home and re­tail sales, as well as firm­ing in­fla­tion in paint­ing an up­beat pic­ture of the econ­omy at the start of the fourth quar­ter.

Mean­while, more Amer­i­cans sought un­em­ploy­ment ben­e­fits last week. But job­less claims re­main at low lev­els, show­ing that most Amer­i­can work­ers en­joy job se­cu­rity.

The La­bor De­part­ment says ap­pli­ca­tions for job­less aid rose by 18,000 to a sea­son­ally ad­justed 251,000. They had fallen the pre­vi­ous week to the low­est level since 1973. The less-volatile four­week av­er­age slid by 2,000 to 251,000. The over­all num­ber of peo­ple col­lect­ing un­em­ploy­ment checks was 2.04 mil­lion, down more than 6 per­cent from a year ear­lier. Ap­pli­ca­tions for un­em­ploy­ment ben­e­fits are a proxy for lay­offs. They have stayed be­low 300,000 for 90 straight weeks, long­est streak since 1970.

Economists had ex­pected the claims num­bers to bounce back af­ter fall­ing the pre­vi­ous week to the low­est level since 1973. That drop might have been ex­ag­ger­ated by prob­lems ad­just­ing the num­bers to ac­count for the Vet­eran’s Day hol­i­day. Claims at such low lev­els show that em­ploy­ers are con­fi­dent enough in the econ­omy to hold onto their work­ers. The US un­em­ploy­ment rate is 4.9 per­cent, close to what economists con­sider full em­ploy­ment.

The At­lanta Fed­eral Re­serve is fore­cast­ing GDP ris­ing at a 3.6 per­cent an­nual rate in the fourth quar­ter. The econ­omy grew at a 2.9 per­cent pace in the July-Septem­ber pe­riod. Against the back­drop of a bright­en­ing eco­nomic out­look, a la­bor mar­ket that is near full em­ploy­ment and ris­ing in­fla­tion, the Fed is ex­pected to hike in­ter­est rates at its Dec 13-14 pol­icy meet­ing. The US cen­tral bank raised its bench­mark overnight in­ter­est rate last De­cem­ber for the first time in nearly a decade.

In a sep­a­rate re­port, the La­bor De­part­ment said ini­tial claims for state un­em­ploy­ment ben­e­fits in­creased 18,000 to a sea­son­ally ad­justed 251,000 for the week ended Nov 19.

Claims have now been be­low 300,000, a thresh­old as­so­ci­ated with a healthy la­bor mar­ket, for 90 straight weeks. That is the long­est run since 1970, when the la­bor mar­ket was much smaller.

The four-week mov­ing av­er­age of claims, con­sid­ered a bet­ter mea­sure of la­bor mar­ket trends as it irons out week-to-week volatil­ity, fell 2,000 to 251,000 last week. The dol­lar ex­tended gains ver­sus the yen, ris­ing to its high­est level since April on the data. Prices for US gov­ern­ment debt fell.

Busi­ness spend­ing on equip­ment has bucked the ac­cel­er­a­tion in eco­nomic growth as the resid­ual ef­fects of a strong dol­lar and lower oil prices con­tinue to curb prof­its of some com­pa­nies. Busi­ness spend­ing on equip­ment has de­clined for four straight quar­ters, weigh­ing heav­ily on man­u­fac­tur­ing, which ac­counts for 12 per­cent of the US econ­omy.

With the dol­lar’s rally ap­pear­ing to have peaked early this year and oil and gas drilling ac­tiv­ity ris­ing in re­cent months, there is cau­tious op­ti­mism that equip­ment spend­ing will re­bound in the fourth quar­ter. Cap­i­tal in­vest­ment is also ex­pected to pick up as some of the un­cer­tainty sur­round­ing the Nov. 8 pres­i­den­tial elec­tion clears. Pres­i­dent-elect Don­ald Trump has pledged a mas­sive in­fras­truc­ture spend­ing pro­gram, which could spur busi­ness in­vest­ment on cap­i­tal equip­ment. That would boost com­pa­nies like heavy ma­chin­ery maker Cater­pil­lar, which last month low­ered its full-year rev­enue out­look for the se­cond time this year. Ship­ments of core cap­i­tal goods rose 0.2 per­cent last month af­ter an un­re­vised 0.4 per­cent gain in Septem­ber. Core cap­i­tal goods ship­ments are used to cal­cu­late equip­ment spend­ing in the gov­ern­ment’s gross do­mes­tic prod­uct mea­sure­ment.

A 12 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 jumped 4.8 per­cent last month. That was the big­gest rise since Oc­to­ber 2015 and fol­lowed a 0.4 per­cent in­crease in Septem­ber.

There were also in­creases in or­ders for fab­ri­cated metal prod­ucts, elec­tri­cal equip­ment, ap­pli­ances and com­po­nents, and com­put­ers and elec­tronic prod­ucts. — Reuters

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