U.S. core capital goods orders dropped unexpectedly in December, providing further evidence of a slowdown in business spending on equipment that could dampen economic growth.
The Commerce Department reported Thursday that orders for non-defense capital goods excluding aircraft — a key measure of business investment — dropped 0.7% in December amid declining demand for machinery and primary metals.
A downward revision also showed core capital goods orders falling 1.0% in November instead of 0.6% as previously reported. Economists had forecast a 0.2% gain in December.
“It appears the bloom is off the economic expansion rose,” Joel Naroff, chief economist at Naroff Economic Advisors, told Reuters. “The data doesn’t paint a picture of strong growth going forward.”
Business spending on equipment has been slowing since the second quarter of 2018, reflecting concerns over the possibility of a recession, political turmoil in Washington, and the trade dispute with China, which has disrupted supply chains.
A survey last month indicated the Trump administration’s tax cuts had not caused companies to change hiring or investment plans.
Overall orders for long-lasting goods rose 1.2% in December as orders for commercial planes surged 28% and bookings for new cars and trucks climbed 2.1%. Economists had forecast a 1.4% increase in products made to last at least three years.
Excluding the volatile auto and aircraft categories, orders rose only 0.1%.
Other recent reports have shown steep declines in retail sales in December and manufacturing output in January. The Philadelphia Fed reported Thursday that its manufacturing activity index dropped to a reading of -4.1 this month from 17.0 in January — the first negative reading since May 2016.
“The data confirm that business investment momentum continues to cool and underscore that growth during the final quarter of the year likely slowed to a mid-2% pace,” economists at Oxford Economics said in a client note.
The Federal Reserve left interest rates unchanged at its most recent meeting in January, noting that “some risks to the downside had increased” as far as the outlook for the economy.