US Core Capital Goods Orders Rise for April Despite Higher Borrowing Cost

• New orders for key U.S. manufactured capital goods rebounded more than expected in April and shipments of those goods also increased, suggesting a moderate improvement in business spending on equipment early in the second quarter.
• Nonetheless, business investment in equipment continues to be hamstrung by higher borrowing costs. That, together with a strong dollar and weak global demand, is keeping manufacturing, which accounts for 10.4% of the economy, on the ropes.
• "Despite elevated borrowing costs and stricter loan standards, U.S. business investment could pick up in the second quarter," said Sal Guatieri, a senior economist at BMO Capital Markets. "However, the manufacturing sector, as a whole, is expected to remain in low gear until interest rates ease, the greenback weakens, and the global economy strengthens."
• Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.3% last month after an upwardly revised 0.1% dip in March, the Commerce Department's Census Bureau said on Friday. Economists polled by Reuters had forecast these so-called capital goods orders would edge up 0.1% after declining by a previously reported 0.2% in March.
• The government last week revised the orders, shipments and inventory data from January 2012 through March 2024 after an annual review of the seasonal adjustment models, which it uses to strip seasonal fluctuations from the numbers. The revision did not affect the core capital goods orders that jumped 1.2% on a year-on-year basis in April.
• Shipments increased 0.4% after a 0.3% drop in March. Non-defense capital goods orders fell 1.5% in April after advancing 1.3% in the prior month. Shipments of these goods rose 2.4% after dropping 1.5% in March.
• These shipments go into the calculation of the business spending on equipment component in the gross domestic product report. They were partially flattered by higher prices, which could lessen the boost to GDP. Business spending on equipment rebounded marginally in the first quarter after two straight quarterly declines, making a small contribution to the economy's 1.6% growth pace.

(Source: Reuters)