US core capital goods orders point to robust growth in equipment spending
SPY•US core capital goods orders rose 1.6% in August after a revised 0.6% increase in July, while shipments climbed 0.6%. Consumer sentiment fell to a four-month low of 48.1, and one-year inflation expectations rose to 4.6%.
1. Equipment orders strengthen
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business equipment spending, increased 1.6% in August, above economists’ 0.5% forecast. Orders were up 10.6% from a year earlier, led by a 1.1% rebound in electrical equipment, appliances and components. Computer-related orders rose 1.5% and communications equipment orders gained 0.3%.
2. Spending outlook and risks
Shipments of core capital goods, which feed into the business equipment component of GDP, rose 0.6% after a 1.4% increase in July. The article said economists at JPMorgan and Goldman Sachs believed business equipment spending had recorded two consecutive quarters of double-digit growth, with the streak extending into the third quarter. Goldman Sachs raised its third-quarter GDP growth estimate to a 3.4% annualized rate from 3.3%, while economists cited risks from higher energy prices and borrowing costs and signs of slower capital spending growth.
3. Sentiment and durable goods
The University of Michigan’s Consumer Sentiment Index fell to 48.1 in September from 51.7 in August, while one-year inflation expectations increased to 4.6% from 4.0%. Durable goods orders were unchanged, as transportation equipment orders fell 0.6% and civilian aircraft orders dropped 4.3%.
