New orders for key US-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter and was a drag on economic growth.
Business spending remains one of the weak spots in the economy. Housing, the other laggard, is regaining momentum in response to the Federal Reserve’s three interest rate cuts last year. Officials from the US central bank were scheduled to start a two-day policy meeting on Tuesday.
They are expected to reiterate the Fed’s desire to keep rates unchanged at least through this year. Weak business investment and the resulting slump in manufacturing have been on the radar of Fed officials who have blamed trade tensions, especially the White House’s 18-month trade war with China, and an uncertain global economic growth outlook for the malaise.
Though tensions have eased with the signing this month of a “Phase 1” trade deal between Washington and Beijing, Boeing continues to loom over manufacturing. Boeing this month suspended production of its troubled 737 MAX jetliner, which was grounded last March following two fatal crashes.
The Commerce Department said on Tuesday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.9 per cent last month as demand for machinery, primary metals and electrical equipment, appliances and components declined.
That was the largest decrease since April. Data for November was revised lower to show these so-called core capital goods orders edging up 0.1 per cent instead of gaining 0.2 per cent as previously reported. Economists polled by Reuters had forecast core capital goods would be unchanged in December.
Core capital goods orders rose 0.8 per cent in 2019. Shipments of core capital goods decreased 0.4 per cent last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They declined by an unrevised 0.3 per cent in November.