Orders for long-lasting US manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods tumbled, casting a shadow over the economy early in the third quarter.
The Commerce Department said yesterday durable goods orders dropped 7.3 per cent as demand for goods ranging from aircraft to computers and defence equipment fell.
That was the biggest decline since last August and snapped three consecutive months of gains.
Orders for these goods, which range from toasters to aircraft, had increased 3.9 per cent in June. Economists polled by Reuters had expected durable goods orders to fall four per cent.
Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 3.3 per cent, breaking four straight months of gains. It was the biggest fall since February.
Orders for these so-called core capital goods increased by a revised 1.3 per cent in June.
Economists had expected this category to rise 0.5 per cent after a previously reported 0.9 per cent gain in June.
The decline in orders for both durable and capital goods suggested manufacturing will probably not bounce back as quickly as many economists had expected after hitting a speed bump early in the year.
That, combined with a slowdown in residential construction and new home sales, implies economic growth might not accelerate much from the second quarter’s 1.7 per cent annual pace. Pointing to a weak start to business spending, shipments of core capital goods – used to calculate equipment and software spending in the gross domestic product report – fell 1.5 per cent.
The drop, which came despite gains on orders the prior month, is probably related to the fact that not all components in this category are seasonally adjusted. As such core capital goods shipments tend to decline at the start of the quarter. Shipments had dropped 0.8 per cent in June.
“While the decline in the headline reading was not a major surprise, the weak detail of the report casts doubt over the previously improving outlook for business investment,” said Andrew Grantham, an economist at CIBC World Markets in Toronto.
US Treasury debt prices rose on the data, while the dollar extended losses against the yen. Stock index futures were little changed.
Last month, durable goods orders were held down by a 19.4 per cent plunge in bookings for transportation equipment. That reflected a 52.3 per cent drop in orders for civilian aircraft.
Boeing received orders for 90 aircraft in July, down from 287 aircraft the prior month, according to information posted on its website. Orders for motor vehicles gained 0.5 per cent after rising 0.2 per cent the prior month.
Even excluding transportation, demand for long-lasting manufactured goods was weak almost across the board. Orders excluding transportation fell 0.6 per cent.
There were declines in orders for computers and electronic products, and demand for electrical equipment, appliances and components also fell. Orders for machinery and primary metals were flat.
Orders for defence capital goods plummeted 21.7 per cent in July after hefty gains in the prior months.