Financial basis

Equipment spending by U.S. businesses shows signs of slowing in April

General view of metal cutting machines inside the 55-employee Gent Machine Co. factory in Cleveland, Ohio, U.S., May 26, 2021. REUTERS/Timothy Aeppel

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  • Core capital goods orders rise 0.3% in April
  • Core capital goods shipments rise 0.8%
  • Durable goods orders gained 0.4%; deliveries up 0.1%

WASHINGTON, May 25 (Reuters) – New orders for U.S.-made capital goods rose less than expected in April, indicating some moderation in business capital spending at the start of the second quarter, and headwinds are increasing due to rising interest rates and tighter financial conditions .

Orders for non-military capital goods excluding aircraft, a closely watched indicator of business spending plans, rose 0.3% last month, the Commerce Department said Wednesday.

These so-called basic capital goods orders rose 1.1% in March. They are up 18.0% over one year.

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“Growth in equipment investment by rate-sensitive businesses is starting to slow,” said Michael Pearce, senior U.S. economist at Capital Economics in New York. “This aligns with our view that economic activity is weakening rather than collapsing under the impact of higher rates.”

Economists polled by Reuters had forecast a 0.5% rise in orders for basic capital goods. The data is not adjusted for inflation, which also helped boost orders last month.

Robust business investment in equipment helped keep domestic demand strong in the first quarter, even as the economy contracted, weighed down by a record trade deficit.

But the Federal Reserve has adopted an aggressive monetary policy to calm demand and control inflation, triggering a stock market sell-off and boosting US Treasury yields and the dollar, which could slow growth in capital spending.

The Fed has raised its key rate by 75 basis points since March. The US central bank is expected to raise the key rate by half a percentage point at each of its next meetings in June and July.

China’s zero COVID-19 policy, which led to the closure of the Shanghai Mall, is likely to further tangle supply chains, hampering investment spending.

But the slowdown could be limited by companies seeking labor-saving technologies amid severe labor shortages. This would help support manufacturing, which accounts for 12% of the US economy.

Orders for basic capital goods were dampened last month by lower orders for fabricated metal products as well as electrical equipment, appliances and components. There were solid increases in orders for machinery and primary metals. But orders for computers and electronics barely increased.

Shipments of basic capital goods rose 0.8% last month after climbing 0.2% in March. Shipments of basic capital goods are used to calculate capital expenditures in the GDP measure.

Rising shipments of core capital goods last month suggested that business spending would continue to grow, though likely not at the 15.3% annualized pace recorded in the first quarter. Gross domestic product fell 1.4% in the last quarter

Orders for durable goods, items ranging from toasters to airplanes meant to last three years or more, rose 0.4% after rising 0.6% in March. They were supported by a 0.6% rebound in transport equipment orders, after a 0.3% drop in March.

Motor vehicle orders fell 0.2% after jumping 4.8% in March. Orders for the volatile civil aircraft category rose 1.0% after falling 14.7% the previous month. Boeing (BA.N) said on its website that it received 46 plane orders last month compared to 53 in March.

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Reporting by Lucia Mutikani Editing by Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.