The Economy

U.S. Core Capital Goods Orders Drop 0.2%

“Last year’s moonshot in business spending is showing some signs of returning to earth,” one economist says.
Matthew HellerFebruary 27, 2018

In another indication that the U.S. economy lost some momentum at the start of the year, a closely-watched proxy for business spending plans fell for a second straight month in January.

The Commerce Department reported Tuesday that orders for non-defense capital goods excluding aircraft dropped 0.2% last month after declining 0.6% in December. Economists polled by Reuters had forecast a 0.5% gain in January.

It was the first back-to-back drop in core capital goods orders since May 2016 and followed other data, including weak January retail sales, that indicate the economy is off to a sluggish start in 2018.

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“The durable goods report follows a string of disappointing economic data to start the year and is consistent with a more moderate pace of GDP growth” in the first quarter, Scott Brown, chief economist at Raymond James & Associates, told MarketWatch.

The Atlanta Fed on Tuesday cut its first-quarter GDP estimate by six-tenths of a percentage point to a 2.6% annualized rate. The Trump administration has set a 3% growth target but estimates by Wall Street investment banks are as low as a 2.0% pace.

“We still have penciled in 2.5% GDP growth this quarter, but we are growing nervous about what is looking to be an overly optimistic forecast,” Chris Rupkey, chief economist at MUFG in New York, told Reuters.

Overall durable goods orders plunged 3.7% in January — the biggest decline since last summer — largely because of a 28% drop in contracts for passenger planes after a 16% surge in December. The aircraft category often shows month-to-month volatility.

As Reuters reports, business spending on equipment “is slowing after robust growth in 2017, which was partly driven by expectations of hefty tax cuts from the Trump administration, which have since materialized.” In 2017, core orders rose in all but two months and businesses boosted investment by the fastest pace in six years.

“Last year’s moonshot in business spending is showing some signs of returning to earth,” said Tim Quinlan, a senior economist at Wells Fargo Economics.