US core capital goods orders point to robust growth in business spending on equipment
New orders for key US-manufactured capital goods increased more than expected in August and data for the prior month was revised sharply higher, pointing to another quarter of robust growth in busine...
The Commerce Department reported on Friday that core capital goods orders in the United States rose more than anticipated in August, with figures for the previous month revised significantly upward. This data indicates a continuation of robust business spending on equipment, driven by an artificial intelligence infrastructure buildout.
The positive report follows an S&P Global survey indicating that business activity accelerated in September. However, concerns are emerging about the sustainability of AI-related demand. Some industry leaders have called for regulation of the technology, while others worry that rising oil prices, interest rates, and the Middle East conflict could negatively impact other manufacturing sectors not tied to AI.
Christopher Rupkey, chief economist at FWDBONDS, noted that AI investment is real and is propelling the economy forward. Core capital goods orders, excluding aircraft, jumped 1.6% in August, following an upwardly revised 0.6% increase in July. Economists surveyed by Reuters had expected a 0.5% increase after an unchanged reading in July.
Year-on-year, core capital goods orders grew by 10.6% in August. The strength in orders was driven by a 1.1% rebound in electrical equipment, appliances, and components, 1.5% increase in computers and electronic products, 0.3% growth in communications equipment, and 35.8% surge in computer and related products compared to a year ago.
Machinery orders increased 1.1%, while primary metals bookings rose 1.2%. However, orders for fabricated metal products decreased 1.3%. Despite the strong performance, some economists caution that capital spending might be slowing, particularly with the high levels of existing activity and spending. Veronica Clark, an economist at Citigroup, pointed out that there are early signs of a moderate slowdown in capital expenditure plans according to regional Federal Reserve manufacturing surveys.
Nonetheless, there are concerns that the growth rate of new investment could decelerate given the already high activity and spending levels.
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