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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