Orders for US Business Equipment Match Biggest Drop This Year

(Bloomberg) -- Orders placed with US factories for business equipment unexpectedly declined in May, indicating firms remain cautious about investment amid higher-for-longer borrowing costs and softer demand.

The value of core capital goods orders, a proxy for investment in equipment excluding aircraft and military hardware, decreased 0.6% last month and matched the biggest drop this year, Commerce Department figures showed Thursday. The data aren’t adjusted for inflation.

Bookings for all durable goods — items meant to last at least three years  — rose 0.1%, boosted by orders for military aircraft. The median estimate in a Bloomberg survey of economists called for a 0.5% decrease.

US Orders for Business Equipment Declined in May | Core capital goods shipments fell the most in three months

Excluding transportation equipment, orders fell 0.1%.

Though many businesses are still committed to making long-term investments, high borrowing costs and demand concerns are leading many firms to dial back expansion plans. That suggests factory production may struggle for momentum in the coming months.

Meanwhile, domestic producers also face the challenge of a stronger US dollar that risks depressing export demand. The US currency has climbed this year on expectations the Federal Reserve will keep interest rates higher for longer.

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Core capital goods shipments, a figure that is used to help calculate equipment investment in the government’s gross domestic product report, decreased 0.5%, the most in three months and suggesting a downshift after a solid start to the year.

The third estimate of first-quarter GDP, also released Thursday, showed business investment in equipment rose at a 1.6% annual pace during the period, marking a sharp upward revision from the previous estimate. That followed declines in four of the previous five quarters.

Separate figures on Thursday showed the merchandise trade deficit widened to $100.6 billion in May, the most in two years and a sign net exports will restrain second-quarter GDP.

The Commerce Department’s report showed bookings for commercial aircraft, which are volatile from month to month, declined 2.8% after falling 14.6% in April.

Boeing Co. reported four aircraft orders in May, down from seven in the prior month and the fewest since January. Boeing has been under a microscope since two fatal 737 Max crashes in 2018 and 2019 and the midair blowout in January of a so-called door plug on a jet operated by Alaska Airlines.

Durable goods orders were boosted by increases in motor vehicles, computers and fabricated metals. Bookings fell for electrical equipment, machinery and communications gear.

While often helpful to compare the two, aircraft orders are volatile and the government data don’t always correlate with the planemaker’s monthly figures

Recent surveys have sent mixed signals for US manufacturing. Industrial production increased in May, helped by a broad-based pickup in factory output, but the Institute for Supply Management’s measure of factory activity shrank in May at a faster pace.

--With assistance from Chris Middleton.

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