Key Takeaways:
- Core capital goods orders rose 0.9% in June, beating consensus estimates
- May's reading was revised up to 1.9% from an initial 1.0%
- Total durable goods orders rose 0.3%, missing the 1.8% estimate
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US core capital goods orders beat estimates, rising 0.9% in June
US business equipment demand extended its expansion in June, capping a strong first half for capital investment.
American companies sustained their equipment spending momentum in June, with core capital goods orders rising 0.9%, exceeding consensus expectations and reinforcing the narrative of resilient business investment.
"Businesses are still willing to commit to long-term capital projects despite elevated borrowing costs, which suggests confidence in demand holds," said James Okafor, macro analyst at Edgen.
The Commerce Department's report showed May's reading was revised up to 1.9% from an initial 1.0%, marking two consecutive months of above-forecast growth. Total durable goods orders — a broader category covering items from industrial machinery to computers — rose 0.3% in June, missing the 1.8% estimate but recovering sharply from a 4.5% decline in May.
The data suggests the manufacturing sector is holding up better than many forecasters anticipated, reducing pressure on the Federal Reserve to deliver early rate cuts. Markets now price a roughly 65% probability of a quarter-point reduction at the September meeting, down from 72% a month ago, according to CME FedWatch data.
The core capital goods category — which strips out volatile aircraft and military orders — is a closely watched proxy for private-sector investment in equipment. June's 0.9% gain followed an upwardly revised 1.9% in May, putting second-quarter core capital goods orders on track for annualized growth of roughly 4%, based on Commerce Department calculations.
The headline durable goods number was dragged lower by a sharp drop in commercial aircraft orders, a volatile category that swung from a 22% jump in May to a decline in June. Excluding transportation, new orders rose 0.4%, matching the prior month's revised pace.
Manufacturing Holds Firm as Rate Debate Intensifies
The resilience in business investment contrasts with pockets of weakness in consumer-facing sectors, where higher rates have weighed on discretionary spending. The Institute for Supply Management's manufacturing PMI has hovered near the 50 contraction-expansion threshold for four months, while industrial production data from the Fed showed factory output rose 0.6% in June.
The capital goods data arrives ahead of the Federal Reserve's July 30-31 policy meeting, where officials are widely expected to hold the federal funds rate at 5.25% to 5.50% for the eighth consecutive meeting. The last rate change was a quarter-point hike in July 2023.
What Comes Next
Economists will watch July and August readings for signs that the momentum is fading. The last time core capital goods orders posted back-to-back beats of this magnitude was in the first quarter of 2024, preceding a period where the S&P 500 industrials sector gained 8% over the following three months.
For the Fed, the data reduces the urgency to cut but does not eliminate the possibility. "If the labor market softens in the July and August reports, the capital goods strength alone won't stop a September cut," Okafor said.
This article is for informational purposes only and does not constitute investment advice.
