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Sept. 27, 2022, 11:07 a.m. EDT

Businesses still have some mojo, durable-goods report shows

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By Jeffry Bartash

The numbers:  Orders at U.S. factories for long-lasting goods fell 0.2% in August because of lower demand for large airplanes, but investment rose in a sign the industrial side of the economy is still chugging ahead.

Economists polled by the Wall Street Journal had forecast a 0.5% decline. Durable goods are products such as cars, appliances and computers that are meant to last at least three years.

More important, a key measure of business spending jumped 1.3% last month and showed surprising strength. So-called core orders — which don’t include military spending or the up-and-down auto and aerospace industries — are viewed as a reliable sign of whether the outlook for businesses and the broader economy is good or bad.

Business investment even accelerated toward the end of the summer, although it’s hard to expect the upturn to continue as the Federal Reserve jacks up interest rates to try to slow the economy. Higher rates make it more costly for businesses to invest.

Big picture: Manufacturers have struggled for the past two years to meet high demand amid a booming economy and ongoing shortages of supplies and labor.

Now demand appears to be slowing and could continue to slow.

While weaker demand will help ease inflation, it would also curb profits and could force companies to cut jobs, exacerbating any potential downturn in the economy.

Key details : Orders for new cars edged up 0.3% in August, but orders for aircraft sank 18.5%. The transportation segment is a large and volatile category that often exaggerates the swings in industrial production.

Outside of transportation, new orders rose slightly, with every major category except for fabricated metal parts posting an increase.

The rate of growth in business investment is still fairly robust, but after being adjusted for inflation, it’s not as strong as it looks. It’s also slowed considerably since the U.S. emerged from worst of the pandemic.

Investment has increased 8.8% in the past year, the weakest reading since early 2021. Orders typically rise steadily in an expanding economy and shrink when things start to sour.

Looking ahead: The drop in orders “wasn’t as bad as we expected and suggests that business equipment investment is, for now at least, still holding up in the face of surging interest rates,” said senior U.S. economist Andrew Hunter of Capital Economics. “Unfortunately, it’s increasingly difficult to see that resilience lasting much longer.”

Market reaction:  The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.17% and S&P 500 /zigman2/quotes/210599714/realtime SPX +0.80% were set to open higher in Tuesday trades.

US : Dow Jones Global
+62.95 +0.17%
Volume: 0.00
Dec. 7, 2023 5:07p
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Volume: 0.00
Dec. 7, 2023 5:07p

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