By Lucia Mutikani
WASHINGTON (Reuters) – New orders for key U.S.-manufactured capital goods increased more than expected in December, but business spending on equipment was likely muted in the fourth quarter after a strike at Boeing disrupted aircraft deliveries.
Nonetheless, the report from the Commerce Department on Tuesday suggested that business investment in equipment was poised to pick up in the first quarter. Spending could get a boost from plans by President Donald Trump’s new administration to cut taxes and lower regulatory barriers, though tariffs on imported goods could be an obstacle.
“I have penciled in a substantial drop in business investment in equipment for the fourth quarter … driven in large part by the fallout from the Boeing strike,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
“I am quite confident that, sooner or later, businesses are going to invest robustly. My baseline is that the unleashing of investment comes later, perhaps after mid-year.”
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% after an upwardly revised 0.9% gain in November, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders climbing 0.3% after a previously reported 0.4% rise in November.
Core capital goods orders advanced 0.6% year on year.
Orders for machinery gained 0.2%. Electrical equipment, appliances and components orders rose 0.3%. Orders for computers and electronic products edged up 0.1% while those for fabricated metal products surged 1.2%. But primary metals orders fell 0.6%.
Shipments of core capital goods increased 0.6% after climbing 0.4% in November.
BOEING STRIKE DRAG
Non-defense capital goods orders fell 7.8% last month after dropping 3.2% in November. Shipments of these goods increased 3.5% after falling 0.9% in the prior month.
These shipments go into the calculation of the business spending on equipment component in the gross domestic product report. A crippling strike by factory workers at Boeing, which started in mid-September and ended in early November, disrupted production and delivery of aircraft.
Strong aircraft deliveries helped to boost business spending on equipment in the second and third quarters, despite higher interest rates undercutting manufacturing.
Economists believe that business spending on equipment was at best neutral to GDP last quarter. The government is scheduled to publish its first GDP growth estimate for the fourth quarter on Thursday. A Reuters survey of economists forecasts GDP increased at a 2.6% annualized rate last quarter.
The economy grew at a 3.1% pace in the July-September quarter. It is expanding well above the 1.8% rate that Federal Reserve officials regard as the non-inflationary growth pace.
The U.S. central bank is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of a two-day policy meeting on Wednesday, having reduced it by 100 basis points since September. The policy rate was hiked by 5.25 percentage points in 2022 and 2023.
Business sentiment perked up as Trump’s electoral victory in November fanned hopes for tax cuts and a less-stringent regulatory environment. But the new administration’s proposed immigration and trade policies have raised fears of a pickup in inflation that could limit the Fed’s ability to continue cutting rates this year.
Orders for transportation equipment dropped 7.4%, amid a 45.7% tumble in commercial aircraft orders. Boeing reported on its website that it had received 142 aircraft orders in December, a surge from the 49 in November. Most of the orders last month were for the 737 MAX planes. Orders for motor vehicles and parts fell 0.2%.
Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, declined 2.2% after decreasing 2.0% in November.
“For others, however, the return of President Trump to office is a positive change in the investment environment,” said Carl Weinberg, chief economist at High Frequency Economics.
“There is some talk in the markets that companies may have accelerated investment projects to beat imminent tariffs on imported goods after the Trump inauguration.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
