U.S. core capital goods rose at a sluggish pace in July and shipments fell by the most in nearly three years, suggesting continued softness in business investment.
The Commerce Department reported Monday that orders for non-defense capital goods excluding aircraft — a key measure of business investment — increased 0.4% last month, driven by strong demand for electrical equipment, appliances and components.
Core capital goods orders increased 1.5% on a year-on-year basis. Economists polled by Reuters had expected core capital goods orders to fall 0.1% in July.
The government also revised June’s gain downward to 0.9% from 1.5% and reported that shipments of core capital goods fell 0.7% last month, the biggest drop since October 2016. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
Amid a backdrop of escalating U.S.-China trade tensions, Reuters said the July durable goods report “could provide more ammunition for the Federal Reserve to cut interest rates again next month.”
“The report reaffirms that industrial sector activity and business investment remain soft, in line with weakness globally as trade concerns weigh on activity,” said Veronica Clark, an economist at Citigroup in New York. “With remaining downside risks, we continue to expect that the Fed will again cut rates by 25 basis points at its meeting in September.”
Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 2.1% in July, the most since August 2018, after rising 1.8% in the prior month.
Orders for transportation equipment jumped 7.0% after gaining 4.1% in June and orders for non-defense aircraft and parts increased 47.8%. Boeing said it had received orders for 31 aircraft in July, excluding its grounded 737 MAX plane, up from only nine in June.
Overall durable goods shipments dropped 1.1% last month.
“The data confirm that business investment momentum continues to fade and is likely to provide limited support to GDP growth in the second half,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York.