New orders for key US-manufactured capital goods rebounded more than expected in April and shipments of those goods also increased, suggesting a moderate improvement in business spending on equipment early in the second quarter.
Nonetheless, business investment on equipment continues to be hamstrung by higher borrowing costs. That, together with a strong dollar and weak global demand, is keeping manufacturing, which accounts for 10.4 per cent of the economy, on the ropes.
“Despite elevated borrowing costs and stricter loan standards, US business investment could pick up in the second quarter,” said Sal Guatieri, a senior economist at BMO Capital Markets. “However, the manufacturing sector, as a whole, is expected to remain in low gear until interest rates ease, the greenback weakens, and the global economy strengthens.”
Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.3pc last month after an upwardly revised 0.1pc dip in March, the Commerce Department’s Census Bureau said yesterday.
Economists had forecast these so-called capital goods orders would edge up 0.1pc after declining by a previously reported 0.2pc in March.
The government last week revised the orders, shipments and inventory data from January 2012 through March 2024 after an annual review of the seasonal adjustment models, which it uses to strip seasonal fluctuations from the numbers. The revision did not affect the unadjusted data.
Core capital goods orders jumped 1.2pc on a year-on-year basis in April. Shipments increased 0.4pc after a 0.3pc drop in March. Non-defence capital goods orders fell 1.5pc in April after advancing 1.3pc in the prior month. Shipments of these goods rose 2.4pc after dropping 1.5pc in March.
These shipments go into the calculation of the business spending on equipment component in the gross domestic product report. They were partially flattered by higher prices, which could lessen the boost to GDP.
Economists at Goldman Sachs raised their second-quarter GDP growth estimate to a 3.2pc annualised rate from a 3.1pc pace. Business spending on equipment rebounded marginally in the first quarter after two straight quarterly declines, making a small contribution to the economy’s 1.6pc growth pace.
Investment has been hampered by Federal Reserve policy tightening that has lifted the US central bank’s benchmark interest rate by 525 basis points since March 2022, eroding demand for goods and raising financing costs for businesses.
The Fed is expected to start lowering borrowing costs in September. It has kept its policy rate in the 5.25pc-5.50pc range since July. The prospect of policy easing by the end of the third quarter received a boost from a University of Michigan survey yesterday showing consumers’ inflation expectations improved in late May after deteriorating early in the month.
The survey’s 12-month inflation expectation fell to 3.3pc from 3.5pc. The five-year inflation outlook improved to 3.0pc from 3.1pc earlier this month.
Consumer sentiment, however, fell to a five-month low on mounting fears about borrowing costs staying high. At face value, pessimism among households would imply slower consumer spending. But the relationship between the two has been weak.
The Commerce Department report showed orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rose 0.7pc in April after a downwardly revised 0.8pc gain in March. Durable goods orders were previously reported to have increased 0.9pc in March.
Orders were lifted by a 1.2pc rise in transportation equipment, which followed a 2.5pc acceleration in March.
Orders for motor vehicles and parts increased 1.5pc after jumping 2.8pc in March. Commercial aircraft orders decreased 8.0pc after rising 7.7pc in March. Boeing reported on its website that it had received only seven aircraft orders in April, sharply down from 113 in the prior month.
Orders for computers and electronic products rose 0.6pc last month, while those for electrical equipment, appliances and components shot up 0.9pc. There were also increases in orders for machinery and fabricated and primary metals.
Shipments of durable goods increased 1.2pc after edging up 0.1pc in March. Durable goods inventories nudged up 0.1pc. Unfilled orders climbed 0.2pc.
&uuid=(email))