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U.S. core capital goods orders and shipments rise solidly in June

New orders for key U.S.-made capital goods increased solidly in June despite supply constraints hampering production at some factories, suggesting business spending on equipment could remain strong beyond the second quarter.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month, the Commerce Department said on Tuesday. These so-called core capital goods orders had gained 0.5% in May.

Economists polled by Reuters had on average forecast core capital goods orders advancing 0.7%.

U.S. stock index futures moved lower after the data. The dollar slipped against a basket of currencies. U.S. Treasury prices were higher.

Business investment on equipment has boomed during the COVID-19 pandemic, underpinning manufacturing, which accounts for 11.9% of the U.S. economy. Meanwhile consumer spending shifted to goods from services, with millions of Americans cooped up at home.

Record low interest rates and massive fiscal stimulus measures offered a further boost, causing supply constraints.

Though demand is reverting to services, with just under half of the population fully vaccinated against the coronavirus, spending on goods is likely to remain strong.

Households accumulated at least $2.5 trillion in excess savings during the pandemic and inventories are low, which will likely see businesses continuing to invest in equipment to boost output.

Core capital goods orders were lifted last month by machinery and primary metal products, as well as computers and electronic products. Orders for electrical equipment, appliances and components were unchanged.

BUSINESS SPENDING

Shipments of core capital goods increased 0.6% after accelerating 0.9% in May. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

Business spending on equipment has recorded three straight quarters of double-digit growth. Another solid quarter of growth is expected when the government publishes its advance estimate of GDP growth for the second quarter on Thursday.

According to a Reuters survey of economists, GDP growth likely increased at an 8.6% annualized rate last quarter, an acceleration from the first quarter’s 6.4% pace. The anticipated growth in the second quarter would be the fastest since 1983 and could mark a peak in the current cycle.

Orders for durable goods, or items ranging from toasters to aircraft that are meant to last three years or more, advanced 0.8% in June after rebounding 3.2% in May. They were supported by a 2.1% increase in orders for transportation equipment.

Orders for civilian aircraft climbed 17.0%. Boeing BA.N reported on its website it had received 219 aircraft orders last month, including 200 for the 737 MAX jet from United Airlines UAL.O. That compared with 73 aircraft orders in May.

Orders for motor vehicles and parts slipped 0.3% after rising 2.0% in May. Motor vehicle production has been hit by a global semiconductor chip shortage. Output of computers and electronic products has also been impacted.

Unfilled durable goods orders increased 0.9% in June after rising 1.0% in May.
Source: Reuters (Reporting by Lucia Mutikani Editing by Andrea Ricci and David Holmes)

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