US business spending on equipment cooling; trade gap narrowing
WASHINGTON: New orders for USmade capital goods and shipments unexpectedly fell in May, but upward revisions to data for the prior month pointed to moderate growth in business spending on equipment in the second quarter.
Other reports on Wednesday showed a sharp narrowing in the goods trade deficit last month, the latest indication that the economy was accelerating this quarter after losing some steam at the start of the year.
There are, however, fears that escalating tensions between the United States and its major trade partners, including China, Mexico, Canada and the European Union, could hurt business sentiment, disrupt supply chains and undercut economic growth.
“Factory managers are worried about the prospects of a full-blown trade war,” said Ilir Hysa, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “That said, the sentiment reflected in the manufacturing surveys is not rattled. But trade policy tensions are clearly a major hurdle.”
The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, slipped 0.2 per cent last month. April data was revised to show the so-called core capital goods orders surging 2.3 per cent instead of the previously reported 1.0 per cent rise.
Economists polled by Reuters had forecast core capital goods orders gaining 0.5 per cent last month. Orders increased 6.8 per cent on a year-on-year basis.
Shipmentsof thesegoodsdipped0.1 per cent last month after an upwardly revised 1.0 per cent increase in April. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
They were previously reported to have gained 0.9 per cent in April. The drop in core capital goods shipments last month did little to dampen expectations of robust GDP growth in the second quarter. Business spending on equipment increased at a 5.5 per cent annualized rate in the first quarter and most economists expected a similar pace of growth in the April-June period.
In other data, the Commerce Department said the goods trade deficit declined 3.7 per cent to $64.8 billion in May as an increase in exports outpaced a rise in imports. The department also said wholesale inventories increased 0.5 per cent in May and stocks at retailers gained 0.4 per cent.
The smaller goods trade deficit was seen offsetting an anticipated drag from inventory investment. Reports on the labor market and consumer spending have suggested that economic growth surged in the second quarter. Gross domestic product estimates for the April-June period are as high as a 5.3 per cent rate. — Reuters