U.S. Capital Goods Orders Surge in December, Defying Expectations
Business Investment Poised for a Boost
Despite a crippling strike at Boeing, new orders for key U.S.-manufactured capital goods exceeded expectations in December, hinting at a potential surge in business investment in the first quarter. The Commerce Department’s report suggests that President Donald Trump’s new administration’s plans to cut taxes and lower regulatory barriers could give business spending a much-needed boost.
Core Capital Goods Orders Rise
Non-defense capital goods orders, excluding aircraft, rose 0.5% in December, surpassing economists’ forecasts of a 0.3% increase. This closely watched proxy for business spending plans also showed a 0.6% year-on-year gain. Orders for machinery, electrical equipment, and computers all saw modest increases, while fabricated metal products experienced a significant 1.2% surge.
Boeing Strike Disrupts Aircraft Deliveries
However, the strike at Boeing, which lasted from mid-September to early November, had a significant impact on aircraft deliveries, leading to a 7.8% drop in non-defense capital goods orders. Shipments of these goods, which affect the business spending on equipment component in the gross domestic product report, increased 3.5% after falling 0.9% in the prior month.
Economists Weigh In
“I’m quite confident that businesses will invest robustly, perhaps after mid-year,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. Others, like Carl Weinberg, chief economist at High Frequency Economics, believe that companies may have accelerated investment projects to beat imminent tariffs on imported goods after the Trump inauguration.
GDP Growth Estimate
The government is scheduled to publish its first GDP growth estimate for the fourth quarter on Thursday, with economists forecasting a 2.6% annualized rate. The economy grew at a 3.1% pace in the July-September quarter, well above the 1.8% rate regarded as the non-inflationary growth pace by Federal Reserve officials.
Federal Reserve Policy
The U.S. central bank is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of a two-day policy meeting on Wednesday, having reduced it by 100 basis points since September. The policy rate was hiked by 5.25 percentage points in 2022 and 2023.
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