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Demand drops for capital goods in the US

By Philip Smith

Business investment has contracted for two straight quarters and is likely to continue dropping in the current quarter

In December 2019, new orders for US-made capital goods fell the most in eight months. Shipments were also weak.

Any drop in demand for capital goods such as machinery, tools, buildings and primary metals is indicative of an underlying malaise in the economy.

According to the US Commerce Department, orders for non-defence capital goods, excluding aircraft, fell 0.9 per cent in December to $68.6bn (£52.7bn, €62.3bn); this was the largest decline since April and lower than expected.

Core capital goods orders did rise by 0.8 per cent year-on-year indicating that this is a recent problem. One cause is the nation’s trade spat with China which, while now on the road to reconciliation, is blamed for impacting upon confidence levels which in turn leads to low levels of investment with a knock-on effect to manufacturing.

Along with housing, business spending is seen as a weak spot in the US economy and investment has been contracting for the past two quarters. Shipments of core capital goods, the figure used to measure equipment sending in the GDP figures, also fell last month by 0.4per cent.

Forecasts show GDP rising at an annual rate of 1.8 per cent in the fourth quarter having grown by 2.1 per cent from July to September. The US government is to publish a further indication of GDP on Thursday, January 30.

FURTHER READING: Eurozone industrial production shrank in October

FURTHER READING: US economy grew more quickly than expected in Q3

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