US core capital goods orders fall, goods trade deficit widens

FILE PHOTO: An employee collects items ordered by customers through the company's two-hour delivery service Prime Now in a warehouse in San Francisco, California, U.S., December 20, 2017. REUTERS/Jeffrey Dastin/File Photo

Washington: New orders for key U.S.-made capital goods fell in August after four straight months of strong gains, while shipments barely rose, but that will probably not change expectations of solid growth in business spending on equipment in the third quarter.

Other data on Thursday showed the goods trade deficit widening sharply last month, driven by declining exports and rising imports. But wholesale and retail inventories increased strongly, which should help to offset some of the anticipated drag from trade on economic growth in the third quarter.
The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.5 percent last month as demand for computers and electronic products as well motor vehicles ebbed.
The so-called core capital goods orders rose 1.5 percent in July. Economists polled by Reuters had forecast orders for these goods rising 0.4 percent last month. Core capital goods orders increased 7.4 percent on a year-on-year basis.
Shipments of core capital goods edged up 0.1 percent last month after jumping 1.1 percent in July. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
With business confidence at multi-year highs, in part buoyed by a $1.5 trillion tax cut package, August’s surprise drop in core capital goods orders is likely to be temporary. There are, however, fears that an escalating trade war between the United States and China could hurt confidence and undercut both consumer and business spending.
Washington on Monday slapped tariffs on $200 billion worth of Chinese goods, with Beijing retaliating with duties on $60 billion worth of U.S. products. The United States and China had already imposed tariffs on $50 billion worth of each other’s goods.
While manufacturers have expressed concerns about the tariffs, which are contributing to bottlenecks in the supply chain, there are so far no indications that the trade tensions are having a big impact on the economy.
The Federal Reserve raised interest rates on Wednesday for the third time this year. Chairman Jerome Powell told reporters that this was “a particularly bright moment” for the economy.
The dollar was trading higher against a basket of currencies, while U.S. Treasury yields were little changed. – Reuters


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