Durable Goods Orders in August 2020

Durable Goods Orders in August 2020

New orders for major U.S. capital goods increased more than expected in August, and demand was stronger than previously anticipated in the previous month, suggesting that business spending on equipment is rebounding after a prolonged downturn.

But Friday’s optimistic report from the Department of Commerce did not change the view that the economic recovery from the COVID-19 recession is slowing as government funds are running out, helping businesses and tens of millions of unemployed people. New coronavirus cases are on the rise in some regions. Consumer spending may decline as retail sales have already slowed.

Federal Reserve Chairman Jerome Powell this week stressed the need for more fiscal stimulus, told lawmakers Thursday that it could make the difference between a sustained recovery and a much slower recession. It is unlikely that another rescue package will emerge before the November 3 presidential election.

Orders for non-defense capital goods, excluding agent aircraft in corporate spending plans, rose 1.8 percent last month, the Commerce Department said. Data for July was revised to show that so-called core capital goods orders rose 2.5% rather than 1.9% as previously estimated.

Economists polled by Reuters predicted a 0.5% increase in key capital goods orders in August.

Over the past month, orders for key capital goods increased due to increased demand for machinery, primary metals, computers and electronics. However, orders for fabricated metal products and electrical equipment, household appliances and parts declined.

US stocks fell. The dollar was higher for the currency basket. US Treasury prices have risen.

Strong Q3 forecast

Shipments of key capital goods rose 1.5 percent over the past month. Shipments of key capital goods are used to calculate equipment expenditure in the government’s measure of gross domestic product. It rose 2.8% in July. Corporate investment fell at a record rate of 26% per year in the second quarter, and spending on equipment fell at a rate of 35.9%. Equipment investment has declined for the fifth consecutive quarter.

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In order to slow the spread of the coronavirus, business resumed after a forced closure in mid-March, resulting in a sharp recovery of economic activity during the summer. Gross domestic product (GDP) is expected to rebound at an annual average of 32% in the third quarter after plummeting to 31.7% in April-June.

However, fading fiscal stimulus is clouding the outlook for Q4 growth. Goldman Sachs lowered its fourth-quarter GDP growth from 6% to 3% on Wednesday.

Durable goods orders, lasting more than three years, from toasters to aircraft, rose 11.7 percent in July and then rose 0.4 percent in August. Durable goods orders increased 0.5% in transportation equipment orders, but demand for automobiles and defense equipment declined.

There were no orders for civil aircraft for the second consecutive month of August.

Boeing is struggling with cancellation issues as airlines’ demand for air travel declines sharply due to the epidemic. After two crashes in Indonesia and Ethiopia in March 2019, the grounding of Boeing’s best-selling 737 MAX jet was also a burden on the company.

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