Capital expenditure by American companies is strong; auto shortages lower exports

WASHINGTON, Oct.27 (Reuters) – New orders for U.S.-made capital goods hit a record high in September and shipments surged, indicating strong business spending on equipment, though supply chains tensions likely hampered overall economic growth in the third quarter.

Expectations of slower growth were bolstered by other Commerce Department data on Wednesday, showing the merchandise trade deficit widened sharply last month, with exports plummeting. As wholesalers’ inventories increased, retailer inventories fell as supply at auto dealerships continued to decline rapidly amid a global semiconductor shortage.

The reports, which preceded the government snapshot of third-quarter gross domestic product on Thursday, prompted some economists to lower their growth estimates. The economy is believed to have grown at the slowest pace since the second quarter of 2020, when it suffered a historic contraction following strict mandatory measures to contain the first wave of COVID-19 infections.

“The third quarter may be the weakest quarter for economic growth in over a year, but you would never know by looking at the capital spending of companies setting records this month,” Christopher said. Rupkey, chief economist at FWDBONDS in New York. “Businesses are looking beyond the slowdown in consumer spending in the third quarter and betting that consumers will return to stores and malls later this year and clear the shelves.”

Orders for non-military non-aircraft capital goods, a close indicator of business spending plans, rose 0.8% last month to a record high. These basic capital goods orders rose 0.5% in August. Economists polled by Reuters were forecasting a 0.5% rise in orders for basic capital goods.

Orders for machinery, primary metals and fabricated metal products increased. But orders for electrical equipment, appliances and components have plummeted, as have orders for computers and electronics, possibly due to the global chip shortage.

Shipments of basic capital goods climbed 1.4% last month after increasing 0.6% in August. Basic capital goods shipments are used to calculate capital expenditure in measuring GDP.

Business spending on equipment has grown in double digits for four consecutive quarters. While economists expect another strong quarter in Thursday’s third quarter GDP report, the pace has likely moderated due to the severe shortage of motor vehicles, which has undermined auto purchases. .

High inflation due to tight supply chains is seen as a drag on the growth of investment in equipment.

“Comparing this nominal increase in shipments with rising producer prices for private capital goods takes some of the optimism away,” said Tim Quinlan, senior economist at Wells Fargo in Charlotte, North Carolina.

Stocks on Wall Street were mixed. The dollar slipped against a basket of currencies. US Treasury prices have gone up.

bottlenecks

The COVID-19 pandemic has shifted demand towards goods and caused severe labor disruptions, leading to unprecedented supply chain bottlenecks that economists and businesses expect. persist until the first half of 2022.

The basic capital goods order book hit a record high in September. This should buzz the manufacturing sector, which accounts for 12% of the economy.

Orders for durable goods, items ranging from toasters to planes expected to last three years or more, fell 0.4% after rising 1.3% in August. They were weighed down by a 2.3% drop in orders for transportation equipment, which followed a 3.8% jump in August. This largely reflects motor vehicle shortages, which pushed orders down 2.9% after falling 3.9% in August.

Orders in the volatile category of civilian aircraft fell 27.9% after rising 63.9% in August. Boeing (BA.N) said on its website that it had received 27 aircraft orders last month, up from 53 in August. Unfilled durable goods orders rose 0.7% after advancing 0.9% the month before.

The movement of goods has also been disrupted by supply constraints. In another report released on Wednesday, the Commerce Department said the merchandise trade deficit increased 9.2% to a record $ 96.3 billion in September. Exports of goods fell 4.7%, while exports of motor vehicles fell 2.0%.

Apart from the spring 2020 shutdown, September was the worst month for motor vehicle production since 2010. There were also sharp declines in exports of capital goods and industrial supplies last month. Imports of goods increased 0.5%. But imports of motor vehicles plunged 7.7%.

The widening merchandise trade deficit prompted economists at JPMorgan to lower their estimate of third-quarter GDP growth to an annualized rate of 2.9% from 3.0%. Goldman Sachs cut its forecast by half a percentage point to a rate of 2.75%.

These estimates are within the range of forecasts of a Reuters survey of economists, which forecast economic growth of 2.7% in the third quarter. This would be a decrease from the 6.7% rate recorded in the second quarter.

The Commerce Department report also showed wholesalers’ inventories rose 1.1% last month. But retail inventories fell 0.2%, led by a 2.4% drop in inventory at car dealerships. Inventories of retailers, excluding automobiles, which are included in the calculation of GDP, increased 0.6%

Stocks were exhausted in the first half of the year. Economists believe the pace of the decline eased in the third quarter, accounting for most of the expected GDP growth. Trade was a drag on GDP growth for a year, while inventories were taken out of production for two consecutive quarters.

“Trade flows will continue to experience pandemic-related disruptions, broken supply chains, shortages as well as delays, but are expected to eventually rebalance as these effects diminish and global economies come back more fully online.” , said Rubeela Farooqi, chief US economist at High Frequency. Economics, in White Plains, New York.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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