Rise in core capital goods orders in the US; Consumer confidence rises more

Rise in core capital goods orders in the US;  Consumer confidence rises more

By Lucia Motikani

WASHINGTON (Reuters) – New orders for U.S.-manufactured capital goods increased more than expected in August, indicating that companies remained eager to invest in equipment despite rising interest rates, which could keep the economy on a moderate growth path.

However, some of the biggest gains in orders in seven months that the Commerce Department reported on Tuesday, reversed higher prices. The data indicated that business spending on equipment likely rebounded in the third quarter, dispelling fears that the economy was in a recession.

This was reinforced by a survey that showed consumer confidence rising for the second consecutive month in September, buoyed by a resilient labor market, which continues to create jobs at a rapid clip and deliver solid wage gains, as well as lower gasoline prices. More consumers plan to buy expensive items such as cars and home appliances over the next six months, which will help support consumer spending.

โ€œIt is difficult to know whether companies are asking for more needs to produce goods and provide services for a stronger economy in the future or whether the spending jump reflects higher prices from inflation that remains out of control,โ€ said Christopher Robke. , chief economist at FWDBONDS in New York. “The economy may be more resilient than we think.”

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.3% last month. This was the biggest gain since January. July data was revised higher to show so-called core capital goods orders rising 0.7% instead of 0.3% as previously reported. The data has not been adjusted for inflation.

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Graphics: Core Capital Goods –

Economists polled by Reuters had expected core capital goods orders to rise 0.2%. There were increases in orders for machinery, primary metals, computers and electronic products, as well as electrical equipment, appliances, and components. But the demands for manufactured metal products fell.

Core capital goods shipments rose 0.3% after rising 0.6% in July. Shipments of core capital goods are used to calculate equipment expenditure in a measurement of GDP.

Business spending on equipment shrank the most in two years in the second quarter. This combined with a sharp deceleration in the pace of inventory build-up caused GDP to contract at an annualized rate of 0.6% in the fourth quarter after declining at a pace of 1.6% in the January-March period.

But the economy was not in a recession in the first half, as the income side of the ledger showed moderate expansion. Goldman Sachs (NYSE:) expects GDP to rebound at a rate of 1.2% in the third quarter.

The economy is on hold despite aggressive monetary policy tightening by the Federal Reserve to fight inflation.

Last week, the US central bank raised the interest rate by 75 basis points, the third consecutive increase of this size. He pointed to more big increases to come this year.

Stocks on Wall Street have been trading lower after the brutal beating over the past six sessions. The dollar settled against a basket of currencies. Long-term US Treasuries fell.

narrow labor market

A second report from the Conference Board on Tuesday showed that the consumer confidence index rose to 108.0 this month from 103.6 in August, beating economists’ expectations for a reading of 104.5. Households’ concerns about inflation eased, largely reflecting lower gasoline prices.

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Graphics: Consumer Confidence –

Consumers’ expectations for 12-month inflation fell to 6.8%, the lowest since January, from 7.0% in August.

The survey’s so-called labor market differential, drawn from respondents’ opinions data on whether jobs are plentiful or hard to come by, rose to 38 from a reading of 36 in August. This metric correlates with the unemployment rate from the Department of Labor and indicates a job market that remains tight.

โ€œThe labor market differential indicates that unemployment fell in September, as opposed to the Fedโ€™s goal of creating a labor market stagnation to lower wage growth,โ€ said Bernard Yaros, an economist at Moody’s (NYSE: Analytics) in West Chester, Pennsylvania.

There have been increases in the percentage of consumers who plan to purchase cars and appliances such as refrigerators, washing machines and vacuum cleaners over the next six months. But consumers were less likely to buy a home as higher mortgage rates and higher home prices eroded affordability.

While a third report from the Commerce Department showed new home sales rose 28.8% to a seasonally adjusted annual rate of 685,000 units in August, that was likely due to builders introducing incentives to liquidate inventory.

Graphics: New Home Sales –

With the 30-year fixed-rate mortgage now at levels last seen during the Great Recession, the rebound in new home sales is likely to be temporary.

However, there was some good news for potential off-market buyers.

A fourth report on Tuesday showed that the S&P CoreLogic Case-Shiller National Home Price Index rose 15.8% year-on-year in July, slowing from the 18.1% advance in June. On a monthly basis, prices fell 0.3% in July, the first decline since late 2018.

Home price inflation was supported by the fifth report from the Federal Housing Finance Agency that showed home prices rising 13.9% in the 12 months through July after rising 16.3% in June. Prices are down 0.6% month over month.

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However, a direct collapse in home prices is unlikely as there is still a shortage of housing.

“The rapid slowdown in home prices was expected due to the Fed’s actions and will bring home price growth closer in line with income growth,” said Salma Heep, deputy chief economist at CoreLogic. “Returning to a long-term average of 4% to 5% annual price growth is closer than initially expected, and likely by early 2023.”

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