us business spending picking up but may slow in second quarter
Last Updated : GMT 06:49:16
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Last Updated : GMT 06:49:16
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US business spending picking up, but may slow in second quarter

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Arab Today, arab today US business spending picking up, but may slow in second quarter

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Washington – Arab Today

New orders for US-made capital goods unexpectedly fell in February, but a surge in shipments amid demand for machinery and electrical equipment supported expectations for an acceleration in business investment in the first quarter.

Manufacturing is recovering from a prolonged slump, driven by the energy sector, bucking a slowdown in the broader economy. The Federal Reserve last week described business investment as appearing to have "firmed somewhat." 

"The evidence is building that manufacturing activity is on something of an upswing and that capital spending on business equipment is poised to advance for the second consecutive quarter," said John Ryding, chief economist at RDQ Economics in New York.

The Commerce Department said on Friday that non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 per cent last month after rising 0.1 per cent in January. That suggested a slowdown in business spending in the second quarter.

Shipments of these so-called core capital goods jumped 1.0 per cent after declining 0.3 per cent in January. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. Last month's jump reflected increases in orders at the end of 2016.

Economists polled by Reuters had forecast core capital goods orders rising 0.6 per cent last month.

Orders for machinery inched up 0.1 per cent while shipments increased 0.9 per cent. Orders for electrical equipment, appliances and components advanced 2.2 per cent, the biggest increase in seven months, and shipments rose 1.5 per cent.

US financial markets were mixed as investors awaited the outcome of a vote later on Friday on a Republican-sponsored bill to replace Democratic President Barack Obama's 2010 Affordable Care Act. The vote is seen as the first significant policy test for President Donald Trump.

Stocks on Wall Street were trading higher, while the dollar was little changed. Prices for US government bonds rose.

"What the healthcare bill does is serve as the first litmus test of the Trump/Republicans' ability to deliver on important legislative initiatives," said Steven Ricchiuto, chief US economist at Mizuho Securities in New York.

"If they fail at this then the prospects for tax reform, infrastructure and defense spending will need to be rethought."

Manufacturing recovering

A recovery in oil prices from multi-year lows is driving demand for equipment in the energy sector, helping to lift the manufacturing sector.

Manufacturing, which accounts for about 12 per cent of the US economy is also being underpinned by a burst of confidence amid promises by the Trump administration to slash taxes for businesses, boost infrastructure spending and repeal some regulations.

Details of the fiscal stimulus package, however, remain vague, resulting in a moderation in orders for equipment in the last couple of months. Economists say business spending could slow in the second quarter even as they expect an acceleration this quarter.

A separate report on Friday from data firm Markit showed its US manufacturing sector index fell in March to a five-month low.

"Business optimism has been at cycle highs since the start of the year, but has yet to translate into commensurate strength in real activity," said Sarah House, an economist at Wells Fargo Economics in Charlotte, North Carolina.

Spending on equipment is expected to pick up after a 1.9 per cent annualised growth pace in the fourth quarter. Still, that will likely be insufficient to offset the drag on GDP from slower consumer spending and a wider trade deficit.

The Atlanta Fed is forecasting the economy growing at a 1.0 per cent rate in the first quarter after expanding at a 1.9 per cent pace in the final three months of 2016.

Last month, a 4.3 per cent jump in demand for transportation equipment offset the dip in core capital goods bookings, and hoisted overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, 1.7 per cent. Durable goods orders rose 2.3 per cent in January.

Civilian aircraft orders soared 47.6 per cent in February, driven by an increase in plane orders at Boeing.

Orders for motor vehicles and parts fell 0.8 per cent in February, while orders for defence aircraft declined 12.8 per cent. There were increases in orders for primary metals, but orders for fabricated metal products fell as did those for computers and electronic products.

Unfilled orders for core capital goods increased 0.2 per cent last month after rising 0.5 per cent in January. Inventories of overall durable goods rose 0.2 per cent last month.

Source :Times Of Oman

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