US orders for basic capital goods stagnate; shipments are still increasing

WASHINGTON, Aug.25 (Reuters) – New orders for key U.S.-made capital goods were surprisingly flat in July amid supply constraints, suggesting moderation in corporate capital spending early in the year. third quarter after robust growth over the past year.

Still, business investment in equipment remains strong, with Wednesday’s Commerce Department report pointing to an acceleration in shipments of such capital goods last month. Investment in equipment should help offset the slowdown in consumer spending and keep the economy on a solid growth path this quarter.

“The underlying details suggest that growth in investment in commercial equipment will slow in the third quarter, but it remains strong by past standards,” said Andrew Hunter, economist at Capital Economics.

“While we would expect weaker consumption growth to lead to a more marked slowdown in overall GDP growth, with many companies facing capacity constraints and continued low interest rates, the outlook for investment seem relatively favorable. “

Last month’s unchanged reading of orders for non-military capital goods excluding aircraft, a closely watched approximation of corporate spending plans, followed a revised upward 1.0% increase in June . These basic capital goods orders would previously have increased 0.7%.

Economists polled by Reuters were forecasting a 0.5% rise in orders for basic capital goods.

Shipments of basic capital goods rose 1.0% last month after increasing 0.6% in June. Basic capital goods shipments are used to calculate capital expenditure in the government’s gross domestic product measure.

US stocks opened lower after a record close for the S&P 500 and Nasdaq in the previous session. The dollar appreciated against a basket of currencies. US Treasury prices were higher.

Business capital spending has recorded four consecutive quarters of double-digit growth, helping to fuel the economic recovery after a brief and brutal COVID-19 pandemic recession, driven by strong demand for goods, thanks to record interest rates and massive fiscal stimulus.

The slowdown in orders for basic capital goods in July likely reflects supply chain bottlenecks. Orders for computers and electronics declined. A current global semiconductor shortage has hampered the production of these products.

Orders for electrical equipment, appliances and components also declined. But orders for primary metals, machinery and metal products rose.

Resilience is welcome amid signs that consumer spending is cooling off, as the Delta variant of the coronavirus causes a resurgence of new infections across the country.

Retail sales declined in July in part because of shortages of motor vehicles. Credit card data suggests spending on services such as airline tickets, cruises, and hotels and motels has slowed.

Goldman Sachs economists last week lowered their estimate of third-quarter GDP growth to an annualized rate of 5.5%, from 9%. Bank of America Securities reduced its estimate of GDP growth for this quarter to a pace of 4.5% from 7.0%. The economy grew at a rate of 6.5% 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 planes meant to last three years or more, fell 0.1% in July after increasing 0.8% in June. They were dragged down by a 2.2% drop in orders for transportation equipment, which followed a 1.4% increase in June.

Orders for civilian aircraft fell 48.9%. Boeing (BA.N) said on its website that it received 31 aircraft orders last month compared to 219 in June. Orders for motor vehicles and parts rose 5.8% in July after rising 1.8% in June.

Motor vehicle production continues to be constrained by the global shortage of chips.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

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