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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