U.S. core capital goods orders, shipments rebound in January

(C) Reuters. U.S. core capital goods orders, shipments rebound in January

WASHINGTON (Reuters) – New orders for key U.S.-made capital goods increased by the most in a year in January and shipments rebounded, but the signs of stabilization in business investment were likely to be tempered by the coronavirus, which is expected to disrupt supply chains.

The Commerce Department said on Thursday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1.1% last month, the largest gain since January 2019. There were increases in orders for machinery, primary metals, computers and electronics products. But demand for electrical equipment, appliances and components fell last month.

Data for December was revised up to show these so-called core capital goods orders falling 0.5% instead of declining 0.8% as previously reported. Economists polled by Reuters had forecast core capital goods orders edging up 0.1% in January.

Core capital goods orders increased 1.4% on a year-on-year basis in January.

Shipments of core capital goods rebounded 1.1% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They fell by an upwardly revised 0.1% in December. They were previously reported to have slipped 0.3% in December.

The rebound in core capital goods orders and shipments at the start of the year likely suggests some stabilization in business investment, which has contracted for three straight quarters. The business investment slump has undercut manufacturing, which is facing supply chain disruptions from the corononavirus, especially for electronics producers like Apple. (O:AAPL)

Data firm IHS Markit said last Friday its flash Composite PMI Output Index, which tracks the U.S. manufacturing and services sectors, contracted to a 76-month low in February.

The coronavirus, which has killed more than 2,000 people, mostly in China, and spread to other countries, has caused a rout on Wall Street and stock markets around the globe. Money markets have increased their bets on the prospect of more Federal Reserve interest rate cuts. The U.S. central bank cut rates three times last year and has signaled its intention to keep monetary policy on hold at least through 2020.

Capital expenditure has been undercut by the White House’s 19-month trade war with China, which has hurt business confidence. A “Phase 1” trade deal signed between Washington and Beijing in January left the bulk of U.S. tariffs on Chinese goods in place. Manufacturing is also taking a hit from Boeing’s (N:BA) decision to halt the production of its troubled 737 MAX plane starting last month.

In January, overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, slipped 0.2% after surging 2.9% in the prior month. Durable goods orders were held down by a 2.2% drop in orders for transportation equipment, which followed an 8.8% jump in December.

Orders for civilian aircraft soared 346.2% last month after plunging 66.7% in December. This was despite Boeing reporting this month that it booked no new orders for airplanes in January, the first time it has come up empty-handed in January since 1962. It received only three commercial aircraft orders in December.

Motor vehicles and parts orders slipped 0.8% in January.