US capital goods orders and trade data temper Q3 growth forecast

WASHINGTON (Reuters) – In August, after four consecutive months of strong rises, the trade deficit widened significantly and new economists slashed their economic growth estimates for the third quarter.

Nevertheless, growth forecasts for the quarter remained at high levels, with other data indicating Thursday an increase in investments in wholesale and retail stocks last month. The Federal Reserve raised interest rates on Wednesday for the third time this year, and President Jerome Powell told reporters it was a "particularly bright moment" for the economy.

"GDP growth in the third quarter is weaker, noisier," said Michael Feroli, an economist at JPMorgan in New York.

The Commerce Department said non-defense off-plan capital equipment orders, a highly monitored indicator of corporate spending plans, fell 0.5% last month.

So-called basic equipment orders rose 1.5% in July. Economists polled by Reuters had forecast orders for these products up 0.4% last month. Orders for basic capital goods increased 7.4% year-over-year.

Shipments of basic capital goods advanced 0.1% last month after jumping 1.1% in July. Deliveries of capital equipment are used to calculate capital expenditures to the extent of government gross domestic product.

With business confidence at multi-year highs, supported in part by a $ 1.5 trillion cut, August's surprise drop in orders for capital goods should be temporary. But economists worry about the escalating trade war between the United States and China, which could undermine confidence and reduce spending.

Washington imposed tariffs on Chinese goods worth $ 200 billion on Monday, and Beijing imposed tariffs on US $ 60 billion worth of goods. The United States and China had already imposed tariffs of $ 50 billion on their respective products.

Although manufacturers have raised tariff concerns that contribute to bottlenecks in the supply chain, economic data does not yet indicate that trade tensions are having a significant impact on the economy. .

"The biggest obstacle to business investment is how commercial rates and continued political uncertainty affect capital spending," said Kathy Bostjancic, director of US Macro Investor Services at Oxford Economics in New York.

The dollar has strengthened against a basket of currencies. Shares on Wall Street were trading higher and US Treasury yields were up slightly.

DECLINE EXPORTS

The Commerce Department confirmed Thursday in a second report that the economy had grown at an annualized rate of 4.2% in the second quarter. It was the fastest in almost four years and almost double the 2.2% pace set in the first quarter.

A third report by the Commerce Department showed that the goods trade deficit increased by $ 3.8 billion to $ 75.8 billion in August.

Exports of goods fell 1.6% to settle at $ 137.9 billion, under the weight of a 9.5% drop in food, food, and food shipments for animals and drinks. This likely reflected a continued reversal of soybean exports following April and May's crop shipments to China before Beijing retaliatory tariffs came into effect in early July.

Exports of industrial supplies and motor vehicles also declined last month. Exports of consumer goods and other goods, however, increased. Imports of goods rose 0.7 per cent to $ 213.7 billion in August, driven by motor vehicles, consumer goods and other goods.

Economists said that importers probably had to stock goods before US tariffs on Chinese imports became effective.

A weaker trade deficit added 1.2 percentage points to GDP growth in the second quarter, but a turnaround is expected for the July-September period.

The expected slowdown could, however, be partially offset by an increase in investments in stocks. Wholesale inventories jumped 0.8% in August and retail inventories rose 0.7%, the Commerce Department said.

Based on Thursday's data, JPMorgan lowered its GDP growth estimates in the third quarter by five tenths of a percentage point to 3.0%. The Atlanta Fed has reduced its forecast to a rate of 3.8%, against a rate of 4.4%.

The economic outlook remains optimistic in a robust labor market. In a fourth report released on Thursday, the Labor Department said the initial applications for state unemployment benefits had increased by 12,000 to a seasonally adjusted level of 214,000 last week.

It was probably due to the fact that Hurricane Florence temporarily displaced some workers. Claims fell to 202,000 during the week ended September 15th, the lowest level since November 1969.