WASHINGTON (Reuters) – New orders for key U.S.-made capital goods were steady in July, but an acceleration in shipments suggested business investment in equipment could offset an anticipated slowdown in consumer spending and keep the economy on a solid growth path in the third quarter.
The Commerce Department said on Wednesday that the unchanged reading in orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, last month followed a 1.0% increase in June.
Economists polled by Reuters had forecast core capital goods orders climbing 0.5%.
Shipments of core capital goods rose 1.0% after increasing 0.6% in June. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
Business spending on equipment helped to power the economy’s recovery from a short and sharp COVID-19 pandemic recession, driven by strong demand for goods, thanks to record low interest rates and massive fiscal stimulus.
The momentum, which has persisted despite supply chain bottlenecks, is welcome amid signs that consumer spending is cooling as the Delta variant of the coronavirus causes a resurgence in new infections across the country.
“Core capital goods orders have made a remarkable comeback over the past year and have shown little signs of slowing,” said Sam Bullard, a senior economist at Well Fargo in Charlotte, North Carolina. “While overall durable goods orders may cool in the coming months as consumers pull back on goods spending and the auto sector contends with supply problems, businesses’ desire to invest and restock inventories should provide a solid demand floor.”
Retail sales fell in July in part because of motor vehicle shortages. Credit card data suggests spending on services like airfares, cruises as well as hotels and motels has been slowing.
Economists at Goldman Sachs last week cut their third-quarter GDP growth estimate to a 5.5% annualized rate from a 9% pace. Bank of America Securities slashed its GDP growth estimate for this quarter to a 4.5% pace from a 7.0% rate.
The economy grew at a 6.5% rate in the second quarter, pulling the level of GDP above its peak in the fourth quarter of 2019.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
