US core capital goods orders rebound as economy eyes strong end to 2024

By Lucia Mutikani

WASHINGTON (Reuters) – New orders for key U.S.-manufactured capital goods surged in November amid strong demand for machinery, offering more signs that the economy is on solid footing as the year ends.

The report from the Commerce Department on Monday, which also showed shipments of these goods increasing for a second straight month, followed on the heels of strong consumer spending data last week.

The upbeat data underscores the economy’s resilience that prompted the Federal Reserve last week to project fewer interest rate cuts in 2025.

“That strength is consistent with our view that business equipment spending growth will accelerate gently next year,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics. “The rebound in core capital goods orders and shipments could reflect some relief from policy uncertainty now that the election is behind us.”

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded

0.7% after dipping 0.1% in October, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders gaining 0.1%.

Core capital goods shipments increased 0.4% year on year. Shipments of core capital goods rose 0.5% after advancing 0.4% in October. Business investment has largely held up despite the U.S. central bank’s aggressive monetary policy tightening in 2022 and 2023 to tame inflation.

The Fed last week cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range. It forecast only two rate reductions in 2025, in a nod to the economy’s continued resilience and still-high inflation.

In September, Fed officials had forecast four quarter-point rate cuts next year. The shallower rate cut path in the latest projections also reflected uncertainty over policies from the incoming Trump administration. The Atlanta Fed is forecasting gross domestic product increasing at a 3.1% rate in the fourth quarter. The economy grew at a 3.1% pace in the third quarter.

Orders for machinery jumped 1.0% after rising 0.5% in October. Electrical equipment, appliances and components orders increased 0.4% after advancing 1.6% in October. There were also increases in orders of primary metals.

But orders for computers and electronic products fell, as did those for fabricated metal products.

Orders for transportation equipment declined 2.9%. They were pulled down by a 7.0% drop in commercial aircraft orders. Boeing (NYSE:BA) reported on its website that it had received 49 aircraft orders, down from 63 in October.

Commercial aircraft shipments declined further, likely weighed down by a seven-week strike at Boeing’s West Coast factories, which halted production of its best-selling 737 MAX as well as 767 and 777 wide-body planes. Boeing has also been dogged by safety concerns.

Aircraft accounted for the robust increase in business spending on equipment in the third quarter.

While economists expected that the decline in aircraft orders would be a drag on business spending on equipment in the fourth quarter, the hit was likely to be limited by the strong rise in core capital goods orders.

“Today’s figures suggest that any overall dip in the fourth quarter may have been shallower than I had previously thought, but the strike and associated production troubles at Boeing are still likely to result in a steep fall in overall business investment in equipment in the fourth quarter, ” said Stephen Stanley, Santander (BME:SAN) US Capital Markets chief US economist,

Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, dropped 1.1% after increasing 0.8% in October. The declines mostly reflected the weakness in commercial aircraft orders.