U.S. core capital goods orders post largest gain in five months;
shipments surge
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[February 28, 2023] By
Lucia Mutikani
WASHINGTON (Reuters) - New orders for key U.S.-manufactured capital
goods increased by the most in five months in January while shipments of
those so-called core goods rebounded, suggesting that business spending
on equipment picked up at the start of the first quarter.
Some of the larger-than-expected rise in core capital goods orders
reported by the Commerce Department on Monday, which ended two straight
monthly declines, likely reflected higher prices last month. It joined
solid consumer spending and robust labor market data in painting an
upbeat picture of the economy.
The string of strong data has raised the risk that the Federal Reserve
could hike interest rates to a higher level than currently estimated.
"Business orders for new equipment are a key indicator of investment in
the economy's future and it counts as good news that long-lived capital
goods are seeing more orders to start the year," said Christopher Rupkey,
chief economist at FWDBONDS in New York. "Orders get canceled if
companies see a loss of revenues and sales, and that is not what the
data are saying right now even if many CEOs are battening down the
hatches and making preparations for recession later this year."
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Orders for non-defense capital goods excluding aircraft, a closely
watched proxy for business spending plans, rose 0.8% last month. These
core capital goods orders dropped 0.3% in December. Economists polled by
Reuters had forecast core capital goods orders edging up 0.1%. Core
capital goods orders increased 5.3% on a year-on-year basis in January.
The data is not adjusted for inflation. Producer prices for capital
goods shot up in January.
The surge in orders is at odds with business surveys that have suggested
manufacturing, which accounts for 11.3% of the economy, was in
recession. Business sentiment soured as the U.S. central bank
aggressively raised interest rates.
But demand for goods, which are typically bought on credit, continues to
hold up. Government data on Friday showed consumer spending on
long-lasting manufactured goods like motor vehicles and household
furnishings rebounded sharply in January, helping to boost consumer
spending. Data this month from the Fed showed manufacturing production
accelerating in January.
"Given the fairly broad strength in this report and the fact that
manufacturing activity surprised to the upside in the industrial
production data released earlier this month, we can't completely dismiss
this as rebound noise," said Shannon Seery, an economist at Wells Fargo
in New York. "But we still doubt the string of weakness we saw toward
the end of last year is the full extent of the contraction for
manufacturing."
Stocks on Wall Street were trading higher. The dollar fell against a
basket of currencies. U.S. Treasury prices rose.
AIRCRAFT ORDERS PLUNGE
The Fed has raised its policy rate by 450 basis points since last March
from near zero to a 4.50%-4.75% range. It is expected to deliver two
additional rate hikes of 25 basis points in March and May, though
financial markets are betting on another increase in June.
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![](../images/022823PIX/busine20.jpg)
A person works at an injection molding
station at the Polaris manufacturing and assembly plant in Roseau,
Minnesota, U.S. June 7, 2021. Picture taken June 7, 2021.
REUTERS/Dan Koeck
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Last month, there were increases in orders for electrical equipment,
appliances and components, machinery, primary metals as well as
computers and electronic products.
Shipments of core capital goods bounced back 1.1% after declining
0.6% in December. Core capital goods shipments are used to calculate
equipment spending in the gross domestic product measurement.
Business spending on equipment contracted in the fourth quarter,
helping to restrain GDP growth to a 2.7% annualized rate. The
economy grew at a 3.2% pace in the third quarter. Growth estimates
for the first quarter are as high as a 2.8% pace.
"Business investment appears to have started 2023 on a positive
note," said Oren Klachkin, lead U.S. economist at Oxford Economics
in New York.
But orders for items ranging from toasters to aircraft that are
meant to last three years or more tumbled 4.5% in January, the
largest drop since April 2020. These so-called durable goods orders
increased 5.1% in December.
Orders last month were weighed down by a 54.6% plunge in the
volatile civilian aircraft category, which followed a 105.6% surge
in December. Boeing reported on its website that it had received 55
aircraft orders in January, a fraction of the 250 booked in
December.
Orders for transportation equipment dropped 13.3% after increasing
15.8% in December. Motor vehicle orders gained 0.2%.
Unfilled orders at manufacturers were unchanged in January after
increasing 1.1% in December. That suggests less work lined up at
factories. There was a reduction inventory, positive news for
manufacturing. But this could weigh on GDP growth. Inventory
accumulation was the main driver of economic growth last quarter.
The housing market, which has been walloped by tighter monetary
policy, is showing signs of finding a floor. But a resurgence in
mortgage rates could delay a turnaround.
The National Association of Realtors said in a second report its
Pending Home Sales Index, based on signed contracts, jumped 8.1% in
January, the biggest gain since June 2020.
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"However, the recent increase in mortgage rates is probably going to
inflict some more pain on the housing market going forward," said
Eugenio Aleman, chief economist at Raymond James in St. Petersburg,
Florida.
(Reporting by Lucia Mutikani; Editing by Dan Burns and Andrea Ricci)
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