U.S. core capital goods orders rise but remain below February level


By Lucia Mutikani

WASHINGTON, Aug 26 (Reuters) - New orders for key U.S.-made capital goods increased in July, though the pace slowed from June's robust gain, suggesting the rebound in business investment would be gradual amid uncertainty about the course of the COVID-19 pandemic.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.9% last month, the Commerce Department said on Wednesday. These so-called core capital goods orders jumped 4.3% in June.

Core capital goods orders are slightly below their pre-pandemic level. They fell 1.9% on a year-on-year basis in July. Last month's increase in orders was in line with economists' expectations.

Though new coronavirus cases have subsided after a broad resurgence following the reopening of businesses in May, the path of the pandemic remains unclear, with many hot spots remaining.

Core capital goods orders last month were supported by demand for machinery, fabricated metals products, computers and electronic products and electrical equipment, appliances and components.

Major U.S. stock indexes opened mixed. The dollar .DXY was trading higher against a basket of currencies while U.S. Treasury prices were largely trading lower.

Shipments of core capital goods increased 2.4% last month. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. They shot up 3.8% in June, but remain 0.4% below their February level.

The shuttering of nonessential businesses in mid-March and a collapse in oil prices helped to undercut business investment, which was already under pressure from the Trump administration's trade war with China.

Though business investment is regaining its footing, the recovery in manufacturing appears to be gaining traction. A report last week showed manufacturing activity, which accounts for 11% of the economy, jumped to a 19-month high in mid-August, boosted as the pandemic shifts demand to goods from services.

Business investment tumbled at a record 27% annualized rate in the second quarter, with spending on equipment collapsing at an all-time pace of 37.7%. Investment in equipment has now contracted for five straight quarters.

Economists expect the government will report a historic decline in corporate profits in the second quarter on Thursday when it publishes its second estimate of GDP for the last quarter.

Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, surged 11.2% in July after advancing 7.7% in June.

Durable goods orders were boosted by robust demand for motor vehicles, which powered ahead 21.9% after accelerating 85.6% in June. There were no orders reported for civilian aircraft orders. Orders for transportation equipment jumped 35.6% last month after rising 19.7% in June. Motor vehicles have a bigger weighting in the transportation category.

Boeing BA.N reported no aircraft orders in July after receiving only one in June. The planemaker has struggled with cancellations as airlines grapple with sharply reduced demand for air travel because of the pandemic. The grounding of Boeing's best-selling 737 MAX jets since March 2019 after two crashes in Indonesia and Ethiopia has also weighed on the company.

(Reporting by Lucia Mutikani Editing by Chizu Nomiyama and Paul Simao)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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