- Core capital goods orders up 0.8% in January
- Shipments of core capital goods up 1.1%
- Durable goods orders for aircraft down 4.5%
- Pending home sales up 8.1% in January
WASHINGTON, Feb 27 (Reuters) – New orders for key US-made capital goods rose the most in five months in January, while shipments of these so-called core items rebounded, suggesting that business spending on equipment rose earlier in the year are First Quarter.
Some of the stronger-than-expected increases in key capital goods orders reported by the Commerce Department on Monday, ending two straight monthly declines, likely reflected higher prices last month. This, coupled with solid consumer spending and robust jobs data, painted an optimistic picture of the economy.
The string of strong data has increased the risk that the Federal Reserve could hike interest rates to higher levels than currently estimated.
“Business orders for new equipment are a key indicator of investment in the future of the economy, and it counts as good news that durable capital goods are picking up orders early in the year,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Orders are canceled when companies see sales and revenue slumping, and the data doesn’t say that right now, even as many CEOs are closing the hatches and preparing for a recession later this year.”
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Non-aircraft capital goods orders, a closely watched indicator of corporate spending plans, rose 0.8% last month. These core capital goods orders fell by 0.3% in December. Economists polled by Reuters had forecast core capital goods orders to rise 0.1%. Core capital goods orders rose 5.3% yoy in January.
The data are not adjusted for inflation. Producer prices for capital goods skyrocketed in January.
The surge in orders conflicts with business surveys suggesting the manufacturing sector, which accounts for 11.3% of the economy, is in recession. Business sentiment deteriorated as the US Federal Reserve aggressively hiked interest rates.
But demand for goods that are normally bought on credit continues. Government data on Friday showed that consumer spending on durable goods such as automobiles and household equipment rebounded sharply in January, helping to boost consumer spending. Data from the Fed this month showed that manufacturing output accelerated 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, economist at Wells Fargo in New York. “But we still doubt that the weaknesses we saw late last year are the full extent of the contraction in manufacturing.”
Stocks on Wall Street traded higher. The dollar fell against a basket of currencies. US Treasury bond prices rose.
core capital goods
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The Fed has raised interest rates by 450 basis points from near zero to a range of 4.50% to 4.75% since last March. Two more rate hikes of 25 basis points are expected in March and May, although financial markets are predicting another hike in June.
Last month, orders for electrical appliances, devices and components, machinery, primary metals, and computers and electronic products increased.
Shipments of core capital goods rebounded 1.1% after falling 0.6% in December. Core capital goods supplies are used to calculate equipment expenditure in the gross domestic product measurement.
Business spending on equipment eased in the fourth quarter, helping to limit GDP growth to an annual rate of 2.7%. The economy grew 3.2% in the third quarter. Growth estimates for the first quarter are up to 2.8%.
“Business investment seems to have started 2023 on a positive note,” said Oren Klachkin, senior US economist at Oxford Economics in New York.
But orders for items ranging from toaster ovens to airplanes designed to last three years or more plunged 4.5% in January, the sharpest drop since April 2020. Those so-called durable goods orders rose 5.1% in December %.
durable goods
Orders last month were weighed down by a 54.6% slump in the volatile commercial aircraft category, following a 105.6% rise in December. Boeing (BA.N) reported on its website that it received 55 aircraft orders in January, a fraction of the 250 booked in December.
Transportation equipment orders fell 13.3% after rising 15.8% in December. Vehicle orders increased by 0.2%.
Unprocessed orders at manufacturers were flat in January after rising 1.1% in December. This indicates that there is less work to be done in the factories. There was an inventory reduction, positive news for manufacturing. However, this could weigh on GDP growth. Inventory building was the main driver of economic growth in the last quarter.
The housing market, battered by tighter monetary policy, is showing signs of bottoming out. But a rebound in mortgage rates could delay a turnaround.
The National Association of Realtors said in a second report that its Pending Home Sales Index, based on signed contracts, rose 8.1% in January, the biggest increase since June 2020.
Pending Home Sales
“However, the recent hike in mortgage rates is likely to inflict further pain on the housing market going forward,” said Eugenio Aleman, chief economist at Raymond James in St. Petersburg, Fla.
Reporting by Lucia Mutikani; Edited by Dan Burns and Andrea Ricci
Our standards: The Thomson Reuters Trust Principles.
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