U.S. core capital goods orders barely rise; shipments drop

[December 23, 2019]    WASHINGTON, (Reuters) - New orders for key U.S.-made capital goods barely rose in November and shipments fell, suggesting business investment will probably remain a drag on economic growth in the fourth quarter.

The Commerce Department said on Monday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, edged up 0.1% last month as a surge in demand for electrical equipment, appliances and components was offset by a decline in orders for machinery.

These so-called core capital goods orders rose by an unrevised 1.1% in October. Economists polled by Reuters had forecast core capital goods orders gaining 0.2% in November.

Core capital goods orders rose 0.7% on a year-on-year basis in November.

Shipments of core capital goods dropped 0.3% last month. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Core capital goods shipments rose by a downwardly revised 0.7% in October. They were previously reported to have increased 0.8%.

Business investment has contracted for two straight quarters, with weak spending on equipment and nonresidential structures such as gas and oil well drilling, contributing to the decline that has pushed manufacturing into recession. Capital expenditure has been undermined by the White House's 17-month trade war with China, which has hurt business confidence.

Despite a recent easing of tensions in the U.S.-China trade war, regional manufacturing surveys showed business confidence remaining subdued in December. Even if business confidence were to improve in early 2020, a turnaround in manufacturing, which accounts for 11% of the economy, is unlikely.

Boeing <BA.N> announced last week it would suspend production of its best-selling 737 MAX jetliner in January as fallout from two fatal crashes of the now-grounded aircraft drags into 2020. Economists estimated that Boeing's biggest assembly-line halt in more than 20 years, which is expected to disrupt supply chains, could cut first-quarter 2020 gross domestic product growth by at least half a percentage point.

Last month, overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 2.0% after gaining 0.2% in the prior month.

Orders for transportation equipment dropped 5.9% after edging up 0.1% in October. Motor vehicles and parts orders increased 1.9% in November. Orders for non-defense aircraft and parts fell 1.8% last month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci) (([e-mail]; 1 202 898 8315; Reuters Messaging: lucia.mutikani.
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