Capital-Goods Orders Fall, Pointing to Slowing Momentum --Update
November 21 2018 - 11:54AM
Dow Jones News
By Harriet Torry
WASHINGTON--A decline in capital-goods orders in October
suggests business investment is softening, a troubling sign for
economic growth in the fourth quarter.
Orders for durable goods -- products designed to last at least
three years, such as computers and machinery -- decreased 4.4% from
the prior month in October, the Commerce Department said Wednesday.
That was the biggest monthly decline in new orders since July 2017,
and it was much steeper than the 2.6% drop Wall Street analysts had
expected.
Business investment, a strong spot for the economy in the first
half of the year, moderated in the third quarter and appears to
have started the fourth quarter on a weak footing. Worries about a
trade war, a drop in oil prices and a stronger dollar that makes
U.S.-made goods pricier for foreign buyers all appear to be
offsetting tailwinds from last year's tax overhaul and strong
corporate balance sheets.
New durable goods orders have declined in three of the last four
months. Orders for September were revised down to a 0.1% decrease
from a previous estimate of a 0.7% increase.
Monthly orders are volatile and last month's decline was
influenced by an outsize drop in aircraft orders. The report showed
orders in the volatile civilian aircraft category declined 21.4% in
October. Still, a closely watched proxy for business investment,
new orders for nondefense capital goods excluding aircraft, was
flat in October after declining 0.5% in September and 0.2% in
August.
"The genuine bad news here is the fact that underlying
capital-goods orders and shipments have leveled off over the past
three months," Michael Pearce, an economist at Capital Economics,
said in a note to clients. "That suggests the sudden weakness in
business-equipment investment in the third quarter was not a
one-off," he added.
Tax-law changes approved late last year were designed to
incentivize business investment, and such spending did increase
6.4% in the first 10 months of the year compared with the same
period of 2017. However, an easing of such equipment orders in
recent months raises the question of whether the boost was
temporary, particularly given uncertainty about tariffs and the
possibility of a trade war with China.
Semiconductor-equipment supplier Applied Materials Inc. last
week issued disappointing guidance, and Chief Executive Gary
Dickerson described market conditions in the second half of the
year as "challenging." During an earnings call Thursday, he cited
elevated macroeconomic risks, global trade tensions and a pullback
in investment in the industry.
Farm machinery maker Deere & Co. said Wednesday that sales
and profits in its latest quarter were lifted by demand in its
construction and farming markets. Still, the company said that it
was pressured by rising raw-material costs, especially in steel, as
well as logistics expenses. It has been working to cut costs and
raise prices as a result, the company said.
Separately, the Labor Department said Wednesday that the number
of U.S. workers filing new applications for unemployment benefits
rose last week to the highest reading since June, though they
remained near historically low levels. Initial jobless claims, an
indication of layoffs across the U.S., increased by 3,000 to a
seasonally adjusted 224,000 in the week ended Nov. 17.
Write to Harriet Torry at harriet.torry@wsj.com
(END) Dow Jones Newswires
November 21, 2018 11:39 ET (16:39 GMT)
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