Thu, 08 Dec 2022

US consumer confidence rises, capital goods orders surge

Robert Besser
01 Oct 2022, 01:44 GMT+10

WASHINGTON D.C.: New orders for U.S.-manufactured capital goods in August increased more than expected, indicating that businesses are still keen to invest in equipment, despite higher interest rates.

However, some of the largest order gains in seven months reported by the Commerce Department were purchased at higher prices.

"It is hard to know whether companies are ordering up more widgets to produce the goods and provide the services for a stronger economy in the future, or whether the jump in spending reflects the higher prices from inflation that remains out of control. The economy may be more resilient than we think," said Christopher Rupkey, chief economist at FWDBONDS in New York, as quoted by Reuters.

In August, orders for non-defense capital goods excluding aircraft rose 1.3 percent, the highest increase since January.

Also, data for July was revised higher to show core capital goods orders gaining 0.7 percent, instead of the previously reported 0.3 percent. The data is not adjusted for inflation.

Core capital goods orders could rise 0.2 percent, according to economists polled by Reuters.

After increasing by 0.6 percent in July, core capital goods shipments, used to calculate equipment spending in the gross domestic product measurement, rose 0.3 percent.

For the past two years, concluding in the second quarter, business spending on equipment contracted at the highest rate, which, together with a sharp slowdown in the pace of inventory accumulation, caused GDP to contract to a 0.6 percent annualized rate last quarter, after declining at 1.6 percent from January to March.

However, in the first half of the year, the economy was not in recession, with the contribution of income to growth showing a moderate increase. In the third quarter, Goldman Sachs predicts GDP to rebound at a rate of 1.2 percent.

Despite the Federal Reserve's aggressive monetary tightening aimed at curbing inflation, the U.S. economy is continuing to hang on.

Last week, the Federal Reserve Bank raised its policy interest rate by 75 basis points, the third straight increase at that level, indicating more major increases this year.

After struggling over the last six sessions, stocks on Wall Street were trading lower, while the dollar was steady against a basket of currencies.

Also last week, a second report from the Conference Board showed that its consumer confidence index unexpectedly increased to 108.0 in September, from 103.6 in August.
Partly due to lower gasoline prices, household concerns about inflation have eased.

Forecasts for 12-month consumer inflation have dropped to 6.8 percent, the lowest since January, from 7.0 percent in August.

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