Business Equipment Orders Drop by Most in 10 Months

Andrew Harrer/Bloomberg News

Orders for business equipment fell in December by the most in 10 months, a sign U.S. companies were slashing capital investment even before the turmoil in global financial markets.

Bookings for non-military capital goods excluding aircraft plunged 4.3% last month after a 1.1% decrease in November that previously was reported as down 0.3%, data from the Commerce Department showed Jan. 28. Orders for all durable goods — items meant to last at least three years — slumped 5.1%, the most since August 2014 and reflecting a broad-based pullback.

Spending on equipment may stay depressed as a further decline in oil prices prompts energy companies to retrench. What’s more, U.S. exporters continue to struggle against softer global demand and an appreciating dollar.

“Overall capex is going to be challenged in the fourth quarter,” Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York, said before the report. That’s a reflection of “what’s been happening in terms of the pain on the manufacturing side because of the commodity price declines, the appreciation currency in the U.S. and what’s going on globally.”

The median forecast of 80 economists surveyed by Bloomberg News estimated orders for all durable goods would fall 0.7%, with projections ranging from a 7% drop to a 3.5% increase. Bookings for non-defense capital goods excluding aircraft — a proxy for business investment — were projected to slip 0.2%.

Shipments of non-military capital goods excluding aircraft, which are used to calculate gross domestic product, decreased 0.2% in December after falling 1.1% the month before. The Commerce Department issues its first estimate of fourth-quarter GDP on Jan. 29.

Equipment spending cooled in the final three months of the year after rising at a 9.9% annualized pace in the third quarter, the strongest since the same period in 2014.

Companies placed fewer orders for communications gear, computers, machinery and transportation equipment. The only increases were in primary metals and electrical equipment.

Commercial aircraft orders slumped 29.4% in December after falling 23.3% a month earlier. Industry data don't always correlate with the government statistics on a month-to-month basis. Boeing Co., the Chicago-based aerospace company, said it received 223 orders for planes last month, the most in a year.

Excluding transportation equipment, which often swings from month to month, bookings decreased 1.2% in December, the report showed.

Orders for military equipment dropped 34.4% last month, while demand for non-defense goods decreased 2.9% after falling 2%.

The Jan. 28 report indicates companies are making progress paring inventories after stockpiles earlier this year outstripped demand. Durable goods inventories increased 0.5%, the most since the end of 2014.

The plunge in crude oil prices has prompted producers to reduce investment. Hess Corp., the New York-based oil and natural gas producer, cited low oil prices when it said this week it will cut capital spending on exploration and production by 40% from a year ago to $2.4 billion.

Soft global growth prospects also have weighed on capital spending projects as economies in China and other emerging markets slow and domestic demand shows signs of strain.


Follow Us


Newsletter Signup

Subscribe to Transport Topics

Hot Topics