U.S. Business-Equipment Orders Post Best Gain in Four Months

(Bloomberg) -- Orders with U.S. factories for business equipment rebounded in May with the largest increase in four months, signaling corporate investment is holding up despite tensions with major trading partners fueling uncertainty about the outlook.

A proxy for business investment -- non-military capital goods orders excluding aircraft -- rose 0.4% after a 1% decline in the prior month, according to Commerce Department figures Wednesday that exceeded estimates. The broader measure of bookings for all durable goods, or items meant to last at least three years, dropped 1.3%, weighed down by a slump in civilian aircraft orders.

Key Insights

• The pickup in equipment orders may ease concerns that unpredictable trade policy is weighing on manufacturers and complicating business investment. Stronger demand would offer more of a tailwind to second-quarter economic growth after a downbeat April figure.
• Federal Reserve policy makers, who signaled last week they’re considering an interest-rate cut, are closely monitoring data such as business investment to decide whether a reduction is warranted at their next meeting in late July.
• In separate data earlier this month, a key U.S. factory gauge declined to a two-year low in May, while regional Fed measures have deteriorated in June.
• The headline durable-goods figure reflects a 28.2% drop in orders for civilian aircraft and parts following a 39.3% plunge in April. Boeing Co. said earlier this month it booked no aircraft orders in May following just four in April amid continued fallout from crashes of its 737 Max.

What Bloomberg’s Economists Say

``Orders outside of the civilian aircraft sector increased, and shipments hinted at a rebound in production. Factory conditions are cooling relative to 2018, to be sure, but analysts anticipating a drag from business investment over the next few quarters may be overly pessimistic.''

-- Carl Riccadonna and Yelena Shulyatyeva, economists

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• A separate report Wednesday showed that the U.S. merchandise-trade deficit widened in May to a five-month high amid a surge in imports following President Donald Trump’s decision to increase levies on $200 billion of items from China.
• The durables report showed the three-month annualized gain for business-equipment shipments eased to 1.7% from 3%, while orders slipped to 1.9% from 2.6%, suggesting softer momentum.
• Excluding transportation-equipment demand, which tends to be volatile, orders rose 0.3%, the most since October, after a drop. Defense capital-goods orders fell 7.8%.
• Shipments of non-military capital goods excluding aircraft increased 0.7%. Durable goods inventories rose 0.5% following a 0.4% gain.

--With assistance from Chris Middleton.

To contact the reporter on this story: Reade Pickert in Washington at epickert@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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