ECONOMIC UPDATE: Durable Goods on Capital Investment “Inched Ahead” in August

By at 27 September, 2019, 2:40 pm

by Raymond J. Keating-

The Census Bureau’s durable goods report for August pointed to overall growth inching ahead, while a key measure of business investment showed contraction.

The topline number estimated that durable goods new orders grew by only 0.2 percent in August. This marked a slowdown from gains of 2.0 percent in July and 1.8 percent in June.

The Census also reported, “Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders decreased 0.6 percent.”

As for capital goods investment, capital goods new orders grew by only 0.2 percent, after a big jump in July (+6.4 percent), a 1.1 percent increase in June, and large declines in May and April. Nondefense capital goods orders declined by 2.1 percent, after big increases in July and June, and large declines in May and April.

Nondefense capital goods excluding aircraft orders, which offers a gauge of private investment in equipment and software, fell by 0.2 percent in August, and has now declined in two straight months.

Source: Federal Reserve Bank of St. Louis, FRED

That’s troubling given that business investment in the GDP data (real fixed nonresidential investment) declined in the second quarter by 1 percent, with equipment investment up by 0.8 percent (after a decline of 0.1 percent in the first quarter) and intellectual property products investment up by 3.6 percent in the second quarter (slowing from a robust 10.8 percent in the first quarter).

These latest nondefense capital goods excluding aircraft orders data do not point to a bounce back in investment during the third quarter – and that’s worrisome for current and future growth.

From a policy standpoint, the ideal scenario for business investment is certainty and reduced costs. Unfortunately, the trade policy picture has created uncertainty and raised costs for U.S. entrepreneurs and businesses, and that, in turn, is having an effect on these investment numbers.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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