Monday 22 January 2018

US durable goods edge slightly higher as fiscal uncertainty remains

Jason Lange

Orders for long-lasting US manufactured goods barely grew in August in a possible sign that companies are holding back on investments due to uncertainty over government spending.

Durable goods orders rose 0.1pc during the month, the Commerce Department said on Wednesday, driven by a 2.4pc jump in orders for new cars - the strongest rise in vehicle orders since February.

The report showed that shipments of non-military capital goods other than aircraft grew 1.3pc during the month, snapping two straight months of declines.

The reading for these so-called "core" shipments feeds directly into the government's estimates for total economic growth and the increase supports the view that government austerity has so far taken only a modest bite from national output. But concerns are growing.

"Companies are still cautious in their capex (capital expenditure) due to the uncertain economic scenario," said Annalisa Piazza, an analyst at Newedge Strategy.

The data, which cover everything from toasters to tanks, had little impact on sentiment on Wall Street, where eyes have grown more focused on debates in the U.S. Congress over government spending and the national debt. Stock index futures were little changed.

The U.S. economy grew at a respectable 2.5pc annual rate in the second quarter but many economists expect the pace will slow in the third.

Worries over the path of fiscal policy have been growing, and new orders for core durable goods, which are viewed as a gauge of business spending plans, rose just 1.5pc in August.

That was below economists' expectations and not enough to make up for the 3.3pc decline registered in July.

"Third-quarter growth in equipment investment will be pretty weak, but the fourth quarter should be notably better," said Paul Ashworth, an economist at Capital Economics in Toronto.

Economists polled by Reuters had expected overall goods orders to be flat. Excluding transportation, new orders fell 0.1pc.

Congress is currently racing to reach a deal that would avoid a shutdown of most government offices after this month, when budgets are due to expire. Lawmakers must also raise the government's legal limit on borrowing in the coming weeks to avoid a default on the government's obligations, which could deliver a big blow to the economy.

Concerns over these debates helped lead the Federal Reserve to keep in place a massive bond-buying program this month. That decision, announced last week, helped push lending rates lower and applications for U.S. home loans rose in the week ending September 20, the Mortgage Bankers Association said.

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