WASHINGTON: New orders for US manufactured capital goods rebounded in October, driven by rising demand for machinery and a range of other equipment, the latest indication of acceleration in economic growth early in the fourth quarter.
The brightening economic outlook received a further boost from other data on Wednesday showing a jump in consumer sentiment this month following the election of Donald Trump as the next president. Consumers embraced the business mogul’s victory, which they viewed as positive for their personal finances and the economy’s prospects.
While the number of Americans filing for unemployment benefits rose from a 43-year low last week, the trend in jobless claims remained consistent with a tightening labour market.
The data reinforced expectations the Federal Reserve would hike interest rates at its December meeting and minutes of the bank’s November policy meeting showed rate setters appeared confident that a rise would come “relatively soon”.
“Everything seems to be moving in the right direction in the economy,” said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania. “The weak links are recovering and the strengths are staying strong. The Fed is not going to continue doing nothing.”
The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent after declining 1.4 percent in September. These so-called core capital goods orders have now increased in four of the last five months.
Shipments of core capital goods rose 0.2 percent last month after a 0.4 percent gain in September. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
A 12 percent surge in demand for transportation equipment buoyed overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, which jumped 4.8 percent last month. That was the biggest rise in a year and followed a 0.4 percent increase in September.
Even as the economy has regained momentum after stumbling in late 2015 and early 2016, business spending remained weak as companies struggled with the impact of a strong dollar and lower oil prices on profits. Business spending on equipment has declined for four straight quarters, weighing heavily on manufacturing, which accounts for 12 percent of the US economy.
With core capital goods orders steadily increasing in tandem with rising gas and oil well drilling activity, there is cautious optimism that business investment on equipment will rebound in the fourth quarter.
But gains are likely to be modest amid renewed strength in the dollar. The greenback’s rally had appeared to run out of steam for much of the year. Still, the rise in both core capital goods orders and shipments mirrored data on industrial production and surveys in showing a nascent recovery in manufacturing.
“Activity in the manufacturing sector is getting a little better, but is still far from robust. The recent strengthening in the dollar does pose a renewed risk to growth in the industrial sector,” said Michael Feroli, an economist at JPMorgan in New York. In a separate report, the University of Michigan said its consumer sentiment index rose 8.2 points from the pre-election reading to 93.8. That put the index 6.6 points above the October reading. UMich said the post-election surge in optimism was widespread, with gains recorded among all income and age subgroups and across all regions of the country.
The reports joined bullish data on housing starts, home and retail sales, as well as firming inflation in painting an upbeat picture of the economy at the start of the fourth quarter. The Atlanta Federal Reserve is forecasting GDP rising at a 3.6 percent annual rate in the fourth quarter. The economy grew at a 2.9 percent pace in the July-September period. The data suggest Trump will inherit a strong economy from the Obama administration.
“Trump is the first president looking back to the early 90s to inherit an economy that is at full employment,” said Chris Rupkey, chief economist at MUFG Union Bank in New York. “The irony is he became president by playing on many voters fears that the economy was rigged against them.”
Against the backdrop of the improving economy, the Fed is likely to hike interest rates at its Dec. 13-14 policy meeting. The US central bank raised its benchmark overnight interest rate last December for the first time in nearly a decade.