WASHINGTON: New orders for key US-made capital goods increased solidly in June despite supply constraints hampering production at some factories, suggesting business spending on equipment could remain strong beyond the second quarter.
Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5 per cent last month, the Commerce Department said on Tuesday. These so-called core capital goods orders had gained 0.5 per cent in May, report agencies.
US stock index futures moved lower after the data. The dollar slipped against a basket of currencies. US Treasury prices were higher.
Business investment on equipment has boomed during the Covid-19 pandemic, underpinning manufacturing, which accounts for 11.9 per cent of the US economy. Meanwhile consumer spending shifted to goods from services, with millions of Americans cooped up at home.
Record low interest rates and massive fiscal stimulus measures offered a further boost, causing supply constraints.
Though demand is reverting to services, with just under half of the population fully vaccinated against the coronavirus, spending on goods is likely to remain strong.
Households accumulated at least US$2.5 trillion in excess savings during the pandemic and inventories are low, which will likely see businesses continuing to invest in equipment to boost output.
Shipments of core capital goods increased 0.6 per cent after accelerating 0.9 per cent in May. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
Business spending on equipment has recorded three straight quarters of double-digit growth. Another solid quarter of growth is expected when the government publishes its advance estimate of GDP growth for the second quarter on Thursday.
According to a Reuters survey of economists, GDP growth likely increased at an 8.6 per cent annualised rate last quarter, an acceleration from the first quarter’s 6.4 per cent pace. The anticipated growth in the second quarter would be the fastest since 1983 and could mark a peak in the current cycle.
Orders for durable goods, or items ranging from toasters to aircraft that are meant to last three years or more, advanced 0.8 per cent in June after rebounding 3.2 per cent in May. They were supported by a 2.1 per cent increase in orders for transportation equipment.
Orders for civilian aircraft climbed 17.0 per cent. Boeing reported on its website it had received 219 aircraft orders last month, including 200 for the 737 MAX jet from United Airlines . That compared with 73 aircraft orders in May.
Orders for motor vehicles and parts slipped 0.3 per cent after rising 2.0 per cent in May. Motor vehicle production has been hit by a global semiconductor chip shortage. Output of computers and electronic products has also been impacted.