New orders for key US-made capital goods unexpectedly fell in January after three straight months of strong gains, but did little to change views that manufacturing was recovering from a prolonged downturn amid rising commodity prices.
Last month’s drop is likely to be temporary as business confidence has surged in recent months on promises by the Trump administration to cut corporate taxes and ease regulations. In addition domestic demand is firming.
“We remain cautiously optimistic as there are limitations to what the president can do, but even minimal improvement from an otherwise declining trend established over the past near-decade is a large step in the right direction,” said Lindsey Piegza, chief economist at Stifel Fixed Income in Chicago.
The Commerce Department said on Monday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.4 percent after an upwardly revised 1.1 percent increase in December.
These so-called core capital goods were previously reported to have gained 0.7 percent in December. There were declines in orders for primary metals and electrical equipment, appliances and components, as well as computers and electronic products. Orders for machinery and fabricated metal products rose.
Economists polled by Reuters had forecast core capital goods rising 0.5 percent last month. A separate report on Monday showed contracts to purchase previously owned homes fell to a one-year low in January amid a dearth of properties for sale.
This suggests that home re-sales could decline in February after hitting a 10-year high in January. Prices for US government bonds were trading lower, while stocks on Wall Street rose to record highs. The dollar slipped against a basket of currencies.
The recent surge in business confidence spilled over into investment on capital goods. January’s drop in core capital goods orders likely reflects caution among businesses as they await details of the proposed stimulus.
Business investment picked up in the fourth quarter, with spending on equipment increasing at a 3.1 percent rate after four straight quarterly declines.
Manufacturing, which accounts for about 12 percent of the US economy, was in a slump for more than a year as a collapse in oil prices undercut demand for machinery.
A strong dollar, however, remains a challenge for manufacturers as it makes their goods less competitive on overseas markets.

Source: Arab News