WASHINGTON, June 26 — New orders for key US-made capital goods rose more than expected in May and shipments increased solidly, suggesting some stabilising in business spending on equipment after a drop early in the year.
Other data today showed a surge in the goods trade deficit last month, leaving intact expectations that economic growth was slowing sharply in the second quarter after getting a temporary boost from a burst in exports and inventory accumulation in the first three months of the year.
Growing risks to the economy, especially related to trade tensions between the United States and China, and low inflation, prompted the Federal Reserve to last week signal interest rate cuts starting as early as July. The economy will mark 10 years of growth next month, the longest expansion in history.
The Commerce Department said orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.4 per cent last month amid increases in demand for machinery, and computers and electronic products. These so-called core capital goods orders dropped by an unrevised 1.0 per cent in April.
Economists polled by Reuters had forecast core capital goods orders edging up 0.1 per cent in May. Core capital goods orders rose 2.3 per cent on a year-on-year basis.
Shipments of core capital goods increased 0.7 per cent last month after an upwardly revised 0.4 per cent gain in the prior month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
They were previously reported to have been unchanged in April. Business spending on equipment contracted in the first quarter for the first time in three years. A bitter trade war between the United States and China has dented business confidence, impacting investment.
Fed Chairman Jerome Powell last Wednesday acknowledged the weak business spending and said many policymakers “cited the investment picture and weaker business sentiment … as supporting their judgment that the risk of less favorable outcomes has risen.”
The weak business spending is weighing on production at factories. Manufacturing, which accounts for about 12 per cent of the economy, is also being undermined by an inventory overhang, especially in the automobile industry, which has resulted in fewer orders being placed with factories.
A slowing global economy and Boeing’s move to cut production of its troubled 737 MAX aircraft is also hurting manufacturing.
In May, orders for machinery rose 0.7 per cent. Orders for computers and electronic products increased 0.8 per cent. There was also an increase in orders for primary metals. Orders for electrical equipment, appliances and components fell 0.4 per cent.
Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dropped 1.3 per cent in May after declining 2.8 per cent in the prior month.
Orders for transportation equipment tumbled 4.6 per cent after diving 7.6 per cent in April. Motor vehicles and parts orders rebounded 0.6 per cent last month. Orders for non-defence aircraft plunged 28.2 per cent.
Boeing reported on its website that it had received no aircraft orders in May after getting orders for four planes in April. Boeing’s fastest-selling MAX 737 jetliner was grounded in March following two fatal plane crashes in five months. It has cut back production and suspended deliveries of the aircraft.
Overall durable goods shipments rose 0.4 per cent and inventories increased 0.5 per cent in May. Unfilled durable goods orders fell 0.5 percent, the most since June 2016, pointing to continued weakness in manufacturing in the months ahead. Regional manufacturing surveys have also weakened in June.
In another report today, the Commerce Department said the goods trade deficit widened 5.1 per cent to US$74.5 billion (RM308.9 billion) in May as an increase in imports offset a rise in exports. Imports of goods increased US$7.8 billion to US$214.7 billion. Exports of goods rose US$4.1 billion to US$140.2 billion last month.
The rising goods trade deficit will likely subtract from GDP growth in the second quarter.
The government also said inventories rose 0.4 per cent in May and stocks at retailers gained 0.5 per cent. Inventory investment is expected to be a drag on second-quarter GDP growth.
Gross domestic product growth estimates for the April-June period are ranging from a 1.5 per cent to 2.4 per cent annualised rate. The economy grew at a 3.1 per cent rate in the first quarter. — Reuters
Source: The Malay Mail Online