New Orders for U.S.-Manufactured Capital Goods Surged

By Lucia Mutikani

WASHINGTON (Reuters) – New orders for key U.S.-manufactured capital goods surged in November amid strong demand for machinery, providing more evidence that the economy is on solid footing as the year ends.

The report from the Commerce Department on Monday also indicated a second consecutive month of increased shipments of these goods, following strong consumer spending data released last week.

The optimistic data highlights the economy's resilience, which led the Federal Reserve to project fewer interest rate cuts in 2025.

> "That strength is consistent with our view that business equipment spending growth will accelerate gently next year," said Michael Pearce, deputy chief U.S. economist at Oxford Economics. "The rebound in core capital goods orders and shipments could reflect some relief from policy uncertainty now that the election is behind us."

Non-defense capital goods orders, excluding aircraft—an important indicator of business spending plans—rebounded by 0.7% after a 0.1% dip in October, according to the Commerce Department's Census Bureau. Economists surveyed by Reuters had predicted a 0.1% increase in these so-called core capital goods orders.

Core capital goods shipments increased by 0.4% year over year, with shipments rising by 0.5% following a 0.4% advance in October. Business investment has largely remained strong despite the U.S. central bank's aggressive monetary policy tightening in 2022 and 2023.

Recently, the Fed lowered its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range, forecasting only two rate reductions in 2025. This projection acknowledges the economy's ongoing resilience alongside still-high inflation.

In September, Fed officials had anticipated four quarter-point rate cuts the following year. The more conservative rate cut outlook also accounts for uncertainty regarding policies from the incoming Trump administration. The Atlanta Fed predicts a gross domestic product increase of 3.1% in the fourth quarter, consistent with a 3.1% growth rate in the third quarter.

Orders for machinery jumped by 1.0% after a 0.5% rise in October. Orders for electrical equipment, appliances, and components increased by 0.4% following a 1.6% advance in October, while orders for primary metals also showed growth.

In contrast, orders for computers and electronic products, as well as fabricated metal products, fell. Additionally, transportation equipment orders dropped by 2.9%, driven by a 7.0% decline in commercial aircraft orders. Boeing reported 49 aircraft orders, down from 63 in October, with commercial aircraft shipments likely impacted by a seven-week strike at its West Coast factories that halted production of popular models including the 737 MAX, as well as the 767 and 777 wide-body planes.

Despite the anticipated decline in aircraft orders, the robust rise in core capital goods orders suggests that the overall dip in the fourth quarter might be less severe than initially thought. However, experts warn production issues at Boeing will likely result in a significant fall in overall business investment in equipment for the fourth quarter.

Orders for durable goods—items meant to last three years or more, ranging from toasters to aircraft—dipped by 1.1% following a 0.8% increase in October. This decline primarily reflects the weakness in commercial aircraft orders.