U.S. core capital goods orders unexpectedly fall in January

February 27, 2017 10:35 AM

New orders for U.S.-made capital goods unexpectedly fell in January after three straight months of strong gains but did little to change views that manufacturing was recovering from a prolonged slump amid rising commodity prices.

The Commerce Department said on Monday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.4 % after an upwardly revised 1.1 % increase in December.

These so-called core capital goods were previously reported to have gained 0.7 % in December. There were declines in orders for primary metals and electrical equipment, appliances and components, as well as computers and electronic products. Orders for machinery and fabricated metal products rose.

Economists polled by Reuters had forecast core capital goods rising 0.5 % last month. January's drop in core capital goods orders likely reflects caution among businesses as they await details of the Trump administration's proposed tax reform.

U.S. financial markets were little moved by the report.

President Donald Trump has promised a "phenomenal" tax plan that the White House said would include tax cuts for businesses and individuals. Details of the plan remain vague, though Treasury Secretary Steven Mnuchin said last week that he wanted the tax relief enacted by August.

Expectations of tax cuts, increased infrastructure spending, and a lighter regulatory burden have boosted business confidence in recent months, spilling over into investment on capital goods. Business investment shifted into higher gear in the fourth quarter, with spending on equipment increasing at a 3.1 % rate after four straight quarterly declines.

The Trump administration's perceived business-friendly policies, together with rising oil prices, are driving manufacturing, which accounts for about 12 % of the U.S. economy. A strong dollar, however, remains a challenge for manufacturers as it makes their goods less competitive on overseas markets.

Shipments of core capital goods fell 0.6 % last month after jumping 1.6 % in December. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

A 6.0 % surge in demand for transportation equipment buoyed overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, which leaped 1.8 % last month. Durable goods orders decreased 0.8 % in December.

Last month's surged reflected a 69.9 % jump in civilian aircraft orders. The surge came even as Boeing reported on its website that it had received orders for only 26 aircraft last month.

Economists believe not all of the 290 aircraft ordered in December were reflected in the durable goods orders report for that month. Orders for motor vehicles and parts rose 0.2 % in January, while bookings for defense aircraft soared 59.9 %.

Pointing to continued manufacturing recovery, unfilled orders for core capital goods increased 0.5 % last month after rising 0.4 % in December.

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