Durable Goods Report: Business Investment Performing Poorly  

By at 26 October, 2019, 9:31 pm

by Raymond J. Keating-

The U.S. Census Bureau’s September durable goods report indicates that business investment continued to perform poorly in September and throughout the third quarter.

Keep in mind that overall private investment declined in the second quarter of this year. That included declining fixed nonresidential (business) investment. And equipment investment declined in the first quarter of this year (-0.1 percent) and barely edged ahead in the second quarter (+0.8 percent).

As for the durable goods report, total durable goods orders declined in September (-1.1 percent), after barely edging higher (+0.3 percent) in August.

And looking at capital investment measures, total capital goods orders declined by 3.1 percent in September (following on a decline of 0.4 percent in August); and nondefense capital goods orders fell by 2.8 percent in September (after a 3.1 percent decline in August).

And if we zero in on nondefense capital goods excluding aircraft orders, which offers a gauge of private investment in equipment and software, it fell by 0.5 percent in September, which came after a decline of 0.6 percent in August and no growth in July.

Source: Federal Reserve Bank of St. Louis, FRED

For good measure, nondefense capital goods excluding aircraft orders has been on a general decline (as noted in the above chart) since July 2018.

These numbers raise doubts about any kind of bounce back in real GDP growth during the third quarter, from the 2.0 percent rate in the second quarter, while also raising questions about growth going forward. No doubt, tariff costs and uncertainties, increased government spending, questions about monetary policy, and assorted political wildcards and threats (obviously with policy implications) are serving to dampen investment.

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


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