USA durable goods see slower Aug growth

Darnell Taylor
September 27, 2020

Orders to USA factories for big-ticket manufactured goods increased just 0.4 percent in August following a much larger gain in the previous month.

Treasuries initially benefited from the release of a report from the Commerce Department showing a much smaller than expected increase in durable goods orders in the month of August.

Orders for non-defense capital goods, excluding agent aircraft in corporate spending plans, rose 1.8 percent last month, the Commerce Department said.

August's 0.4 per cent jump in orders to $232.8 billion was below estimates and a reversal from July's upwardly revised 11.7 per cent growth.

Core capital goods orders last month were boosted by increased demand for machinery, primary metals, computers and electronic products. New coronavirus cases are rising in some parts of the country.

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However Oren Klachkin of Oxford Economics warned the data foreshadowed future weakness in the sector's recovery as manufacturers struggle with the continued risk of COVID-19 and Congress remains deadlocked on more stimulus spending for consumers and business in the United States. Business investment tumbled at a record 26 per cent annualised rate in the second quarter, with spending on equipment collapsing at an all-time pace of 35.9 per cent. Investment in equipment has contracted for five straight quarters. Core capital goods orders are now above their pre-pandemic level.

Ian Shepherdson of Pantheon Macroeconomics said the 1.8 percent growth in new orders for non-defense goods excluding aircraft indicated underlying strength in the report despite the disappointing overall growth. However, orders for fabricated metal products and electrical equipment, household appliances and parts declined. The dollar gained versus a basket of currencies.

The August figure represented the fourth consecutive monthly increase. Transportation equipment shipments had risen in the previous three months. Orders were down sharply in March and April. Durable goods orders were supported by a 0.5 per cent rise in orders for transportation equipment, though demand for motor vehicles and defence aircraft eased. Unfilled orders for transportation equipment have fallen for six consecutive months. After two crashes in Indonesia and Ethiopia in March 2019, the grounding of Boeing's best-selling 737 MAX jet was also a burden on the company.

Inventories of manufactured durable goods fell 0.1%, or by $500 million, to $420.5 billion in August.

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