Orders of basic US capital goods fell sharply in May

WASHINGTON (Reuters) – New orders for key U.S.-made capital goods fell unexpectedly in May, suggesting business spending on equipment weakened in the second quarter as borrowing costs remained high.

Orders of non-defense capital goods, excluding aircraft, a closely watched indicator of business spending plans, fell 0.6% last month, the Commerce Department’s Census Bureau said on Thursday. Data for April was revised slightly higher to show that these so-called capital goods orders rose 0.3% instead of 0.2% as previously reported.

Economists polled by Reuters had expected orders for basic capital goods to rise 0.1%.

Business spending on equipment is under pressure from higher interest rates and softening demand for goods.

A survey by the Institute for Supply Management earlier this month noted that “demand remains elusive as companies demonstrate a reluctance to invest due to current monetary policy and other conditions.”

The Federal Reserve has kept its benchmark overnight interest rate in the current range of 5.25%-5.50% since last July. Financial markets expect the US central bank to begin its easing cycle in September, although policymakers recently adopted a tougher outlook. The Fed has raised its policy rate by 525 basis points from 2022 to quell inflation.

Shipments of core capital goods fell 0.5% after rising 0.4% in April. Orders for non-defense capital goods fell 0.9%, falling for the second month in a row. Shipments of these goods fell by 1.5% after increasing by 2.1% in April. These shipments enter the calculation of business expenses for equipment components in the gross domestic product ratio.

Business spending on equipment rose slightly in the first quarter, making a small contribution to the economy’s 1.4% annual growth rate over that period.

Orders for durable goods, items ranging from toasters to airplanes that are expected to last three years or more, rose 0.1% in May after a revised-down 0.2% increase in April.

The story continues

Durable goods orders were previously reported to have advanced 0.6% in April. Transportation orders rose 0.6%, reflecting a 0.7% increase in motor vehicle orders.

Commercial aircraft orders fell by 2.8%. Boeing reported on its website that it had received just four orders for the planes last month compared with seven in April.

The plane maker has been plagued by problems, seeking scrutiny from regulators and customers since January. Incident 5 in which a smaller 737 MAX operated by Alaska Airlines was forced to make an emergency landing after a fuselage panel exploded mid-flight.

There was a decrease in orders for machinery, primary metals as well as electrical equipment, electrical appliances and components. Orders for computers and electronic products increased by 0.1%.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)