Business Spending Weak as Durable Goods Orders Increase by Only 1%

Manufacturing orders for durable goods in the USA increased by 1% in October. While this shows some promise, it is likely not a sign of things to come as the economy is slowing down.

The Wall Street Journal polled economists who projected that durable goods would increase by 0.5%. However, the actual increase was only 0.4%. This may not seem like much, but it is an important indicator of business spending. Although orders tend to rise when the economy is expanding and shrink when it weakens, the October results show a weaker economy after accounting for inflation. The consumer price index rose 0.4% last month.

After two years of chronic shortages, manufacturers are finally able to produce more of what their customers want. However, this is mostly due to the fact that demand has softened. Higher U.S. interest rates have reduced sales at home, while a strong dollar has dented exports.

The situation could get worse though. The Federal Reserve is trying to bring down high inflation by raising interest rates, but this is expected to slow the economy even further.

The transportation sector, a large and often volatile category, saw orders for new cars rise by 0.6% in October. Orders for aircraft rose more sharply, by 7.4%. However, bookings increased in every other major category except for primary metals.

The rate of growth in business investment has slowed considerably recently, however this figure excludes military spending and the auto and aerospace industries.

Higher borrowing costs are starting to take a toll on business equipment investment, but it’s holding up better than expected. We don’t think this resilience will last much longer.