Business World

Friday 15 November 2019

US business investment shows signs of stalling, worries over Fed’s budget

US business investment showed signs of stalling in September, an indication that worries over a possible sharp tightening in the federal budget are already weighing on the economy.

Other data on Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, a fresh sign the labour market is slowly healing.

New orders for capital goods outside of defence and excluding aircraft -- a proxy for business spending plans -- was unchanged last month at $60.3bn, Commerce Department data showed. Analysts polled by Reuters had expected a modest gain.

The reading highlighted concerns that companies are holding back investments due to fears the U.S. Congress could fail to avert sharp tax hikes and spending cuts in 2013, which threaten to send the country back into recession.

"The slowdown in business fixed investment during the second half of the year is even more pronounced than feared," said Harm Bandholz, an economist at UniCredit in New York.

Shipments of non-defense capital goods other than aircraft, which go into the government's estimates for economic growth, fell for the third straight month. As a result, JPMorgan lowered its estimate for third-quarter economic growth by two tenths of a point to a 1.6pc annual rate.

The investment readings were part of a larger report that showed orders for long-lasting factory goods last month posted their biggest gain since January 2010. However, the rise was fuelled by a spike in volatile aircraft orders and failed to make up ground lost in August.

Manufacturing has been a major driver of the recovery from America's 2007-09 recession, but now is beset by softer demand at home and abroad.

The European debt crisis has suppressed orders at factories around the world, from China to the United States and Latin America.

The U.S. economy remains hobbled by a persistently high jobless rate. Incomes have stagnated and many families are awash in debts taken on during a housing bubble in the last decade.

Recently, however, the economy has shown a few positive signals, with the unemployment rate falling to 7.8pc and retail sales picking up. Consumer spirits also have brightened.

Those signs of improvement appear to have done little to bolster President Barack Obama's bid for a second term, and there is only one more reading on U.S. unemployment before the Nov. 6 election.

The Federal Reserve on Wednesday warned about the weakness in business investment, which has contrasted with brighter economic signals from household spending.

Even though businesses are ratcheting back spending plans, the factory sector still appears to be expanding slowly.

New orders for durable goods -- items like toasters and refrigerators that are meant to last three years or more -- rose a higher-than-expected 9.9pc, partially reversing August's sharp loss.

Excluding transportation, orders rose a more modest 2 percent. Boeing received 143 orders in September, up from just one in August, according to information on the plane maker's website.

Separately, the Labour Department said initial claims for state unemployment benefits dropped 23,000 last week to a seasonally adjusted 369,000.

A Labour Department analyst said all states submitted data for the report and that there was nothing unusual in the raw data. The analyst said the data showed no signs of the factors that had appeared to generate sharp swings in the claims reading over the prior two weeks.

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