11/21/2018

New orders for key U.S.-made capital goods were unexpectedly unchanged in October and shipments rebounded modestly, which could temper expectations of an acceleration in business spending on equipment early in the fourth quarter.

Sluggish business spending on equipment together with a lackluster housing market could fan concerns about the durability of the economic expansion that is now in its ninth year and the second longest on record.

Other data on Wednesday showed the number of Americans filing applications for unemployment benefits rose to more than a four-month high last week. While that will probably not change the view that the labor market is tightening, it suggests some slowing in the pace of job growth.

“The economy may have seen its best day already for growth and prosperity back a couple of months ago in late summer,” said Chris Rupkey, chief economist at MUFG. “ Winter is coming for the economic outlook where business investment spending looks to be topping out, and companies have let a few workers go.”

The Commerce Department said the flat reading in orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, followed a downwardly revised 0.5 percent decline in September.

These so-called core capital goods orders were previously reported to have dipped 0.1 percent in September.

Economists polled by Reuters had forecast core capital goods orders rising 0.2 percent last month. Core capital goods orders increased 6.4 percent on a year-on-year basis.

Shipments of core capital goods rose 0.3 percent in October after a downwardly revised 0.2 percent drop in the prior month.

Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They were previously reported to have slipped 0.1 percent in September.

Business spending on equipment stalled in the third quarter and is faltering despite the Trump administration’s $1.5 trillion tax cut. Some companies including Apple used their tax windfall to buy back shares on a massive scale.

Spending on equipment could also be undercut by declining oil prices. Brent crude has dropped about 28 percent since early October amid rising concerns about slowing global growth.

The Federal Reserve has noted the slowdown in business spending, saying in its policy statement earlier this month that “business fixed investment has moderated from its rapid pace earlier in the year.”

The dollar .DXY held at lower levels against a basket of currencies after the data. Prices of U.S. Treasuries were trading lower while U.S. stock index futures were trading higher.

TRANSPORTATION ORDERS TUMBLE 

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 4.4 percent in October. That was the biggest drop since July 2017 and reflected a 12.2 percent decline in demand for transportation equipment.

Durable goods orders edged down 0.1 percent in September.

Orders for motor vehicles and parts rose 0.2 percent last month. Orders for defense aircraft plunged 59.3 percent and bookings for civilian aircraft dropped 21.4 percent. Boeing Co reported on its website that it had received only 18 aircraft orders in October compared to 65 in September.

In a separate report on Wednesday, the Labor Department said initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 224,000 for the week ended Nov. 17, the highest level since the end of June.

Data for the prior week was revised to show 5,000 more applications received than previously reported. Economists polled by Reuters had forecast claims slipping to 215,000 in the latest week.

The Labor Department said no states were estimated last week. It said claims for North Carolina and Florida continued to be affected by Hurricanes Florence and Michael, respectively.

The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,000 to 218,500 last week.

The claims data covered the survey period for the nonfarm payrolls component of November’s employment report.

The four-week average of claims rose by 6,750 between the October and November survey weeks, suggesting some moderation in job growth this month. Payrolls increased by 250,000 jobs in October, with the unemployment rate holding near a 49-year low of 3.7 percent. The labor market is viewed as being near or at full employment.

Reuters (Reporting by Lucia Mutikani; Editing by Paul Simao)