U.S. Business Investment Rose Ahead of Coronavirus
February 27 2020 - 01:03PM
Dow Jones News
By Amara Omeokwe and Sarah Chaney
A key measure of U.S. business investment rose in January, a
sign businesses were more willing to spend in early 2020, despite
coronavirus risks that erupted late that month.
New orders for nondefense capital goods excluding aircraft -- or
what are called core capital goods orders, a closely watched proxy
for business investment -- increased 1.1% in January from the
previous month, the Commerce Department said Thursday.
The rise came during a month when the U.S. and China signed an
initial trade deal, marking a truce in a protracted trade spat
between the two countries. The coronavirus outbreak also emerged
that month in China and has spread to other parts of the world, and
could pose a risk for the U.S. economy.
Trade tensions had weighed on U.S. business sentiment and
investment for much of 2019, and prompted a global manufacturing
slowdown. Core capital goods orders posted year-over-year declines
in four months last year.
The January data "are consistent with a possible bottoming out
in business fixed investment. Unfortunately, that all goes out the
window with Covid-19," Scott Brown, chief economist at Raymond
James wrote in a note to clients, referencing the coronavirus
outbreak.
A separate Commerce Department report released Thursday
reflected the sluggish trend in business spending during 2019. The
agency's updated figures on fourth-quarter gross domestic product
showed nonresidential fixed investment, which reflects business
spending on items such as equipment and software, fell 2.3% during
the October-to-December period, a sharp downward revision from an
earlier estimate of a 1.5% decline.
The January figures on core capital goods offered a sign
business investment might have been firming, however. The data were
released as part of a larger report on new orders for durable goods
-- items designed to last at least three years -- during January.
The rise in new core orders was the biggest monthly increase since
January 2019, according to the Commerce Department.
Other data covering periods before this month's spread of the
coronavirus outbreak had signaled the U.S. economy broadly remained
on stable footing. The unemployment rate in January, at 3.6%, held
near a 50-year low as more Americans joined the labor force, and
consumer surveys from early February showed Americans remained
optimistic about future economic conditions.
Stephen Stanley, chief economist at Amherst Pierpont, said in a
note to clients that he had expected a pickup in capital
expenditures this year because of the easing in U.S.-China trade
tensions.
The durable goods report "offers compelling support for that
hypothesis, although obviously the ripple effects of the
coronavirus could distort things for a few months going forward,"
Mr. Stanley said.
Write to Amara Omeokwe at amara.omeokwe@wsj.com and Sarah Chaney
at sarah.chaney@wsj.com
(END) Dow Jones Newswires
February 27, 2020 12:48 ET (17:48 GMT)
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