New orders for key U.S.-made capital goods fell in August after four straight months of strong gains and the goods trade deficit widened sharply, prompting some economists to significantly lower their economic growth estimates for the third quarter. Still, growth projections for the quarter remained at lofty levels, with other data on Thursday showing increased investment in wholesale and retail inventories last month. The Federal Reserve raised interest rates on Wednesday for the third time this year, and Chairman Jerome Powell told reporters that this was “a particularly bright moment” for the economy.
The Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.5 percent last month as demand for computers and electronic products as well as motor vehicles ebbed. The so-called core capital goods orders rose 1.5 percent in July. Economists polled by Reuters had forecast orders for these goods rising 0.4 percent last month. Core capital goods orders increased 7.4 percent on a year-on-year basis.
Shipments of core capital goods edged up 0.1 percent last month after jumping 1.1 percent in July. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. With business confidence at multi-year highs, in part buoyed by a $1.5 trillion tax cut package, August’s surprise drop in core capital goods orders is likely to be temporary. But economists worry an escalating trade war between the United States and China could hurt confidence and undercut spending.
Washington on Monday slapped tariffs on $200 billion worth of Chinese goods, with Beijing retaliating with duties on $60 billion worth of U.S. products. The United States and China had already imposed tariffs on $50 billion worth of each other’s goods. While manufacturers have expressed concerns about the tariffs, which are contributing to bottlenecks in the supply chain, there are so far no indications from economic data that the trade tensions are having a big impact on the economy.
“The big wild card for business investment is how the trade tariffs and persistent policy uncertainty affect capital expenditures,” said Kathy Bostjancic, head of U.S. Macro Investor Services at Oxford Economics in New York. The dollar firmed against a basket of currencies. Stocks on Wall Street were trading higher and Treasury yields rose slightly.