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Another group waiting on Jay Powell to cut rates: businesses that need new equipment.
Orders for capital goods fell 0.1% from June to July, the Commerce Department said Monday, and June’s month over month increase was revised down to 0.5%.
The surprise decline in the “closely watched proxy for business spending plans” seems to show that businesses are holding off on new orders until the Federal Reserve cuts interest rates, Reuters reported. The data “confirm the ongoing trend that manufacturers are largely standing idle until looser policy comes to fruition and supports broad-based order demand,” Wells Fargo economist Nicole Cervi told the outlet.
Businesses are also waiting to see who the US chooses as its next president, Bloomberg reported. The combination of “uncertainty about the presidential election and future demand,” it said, “suggests factory production may struggle for momentum in the coming months.”
Mined metals, computers, and motor vehicles were among the goods with fewer orders in July, according to Bloomberg.
But have no fear—at least not yet. While early Q3 has seen a slowdown, “new orders are miles away from indicating an economic recession for the broader economy,” FWDBONDS chief economist Christopher Rupkey told Reuters. Cervi doesn’t appear to be sweating it either. “We suspect a rebound in capital expenditures is coming,” she told Reuters, once the rate cuts “filter through to the real economy.”
Flying high. Orders looked better when adding aircraft into the mix. Durable goods—namely equipment, including aircraft and military hardware, that’s meant to last at least three years—rose 9.9% in July, the most in four years, according to Bloomberg. It’s a sharp turnaround after more orders were canceled than placed in June. Paul Ashworth, Capital Economics economist, told Reuters that June’s nosedive is explained partly by businesses not wanting to buy Boeings and by Paris skipping its every-other-year airshow. The city must have had something else going on this summer.