Rise in investment spending prompts positive forecast for growth in US
Published 29/09/2011 | 05:00
US BUSINESSES stepped up investment spending in August despite the upheaval caused by bitter political fighting in Washington, and some economists raised their forecast for economic growth for this quarter.
The Commerce Department said yesterday that non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending, increased 1.1pc after falling 0.2pc in July.
That was well above economists' expectations for a 0.3pc rise and suggested that businesses, sitting on about $2 trillion in cash, had not responded to the recent financial market volatility by curtailing investment.
"If we were in a recession we would expect to see business orders for capital goods plummeting and they are not," said Richard DeKaser, an economist at Parthenon Group in Boston.
The solid rise in investment spending, which was accompanied by a 2.8pc rise in shipments of capital goods, prompted some economists to raise forecasts for third-quarter economic growth.
JPMorgan lifted its GDP growth forecast to an annual rate of 1.5pc from 1pc, while forecasting firm Macroeconomic Advisers raised its projection to 2.1pc from 1.7pc.
Shipments of civilian capital goods orders excluding aircraft go into the calculation of gross domestic product.
"While we don't yet know the split between how much went to domestic versus foreign buyers, this almost certainly implies another solid quarter for capital equipment spending," said Michael Feroli, an economist at JPMorgan in New York.
Stocks on Wall Street initially rose on the data, but gave up gains to trade flat ahead of an audit of Greece's finances to decide whether the nation gets more aid to avoid bankruptcy.
Prices for Treasury debt fell, while the dollar rose broadly.
Extreme volatility in financial markets, as politicians in Washington fought over budget policy and Europe struggled to come to grips with its debt crisis, has knocked confidence and raised the risk of a new US recession.
But businesses are showing some confidence in the recovery. Tech companies, including Intel, IBM, and Taiwan Semiconductors, this week said they would collectively invest $4.4bn in facilities developing a new generation of computer chips in New York State.
"Poisonous political dialogue and the attacks on business led people to be predictably very cautious, not investing, not wanting to hire," said Blackstone Group chief Stephen Schwarzman at the Lincoln Center Dialogue breakfast series.
"The general uncertainty has basically frozen the economy."
Although business spending plans point to continued growth, the report also confirmed a slowing trend in manufacturing.
Overall orders for durable goods -- items ranging from toasters to aircraft meant to last three years or more -- dipped 0.1pc after a 4.1pc jump in July.
The drop in orders, which are quite volatile from month to month, came despite a 23.5pc rise in orders for civilian aircraft.
Boeing received 127 orders for aircraft, according to the plane maker's web site, up from 115 in July, with Delta Airlines placing an order for 100 planes. (Reuters)