New orders for key U.S.-made capital goods were unexpectedly flat in July amid supply constraints and a shift in demand to services, suggesting that business spending on equipment could slow in the second half after robust growth over the past year.
Still, business investment in equipment remains strong, with the report from the Commerce Department on Wednesday showing shipments of these capital goods accelerating last month. Orders are 18% above their pre-pandemic levels. Investment in equipment is expected to help offset cooling consumer spending and keep the economy on a solid growth path this quarter.
“Overall, the July data point to solid equipment spending growth at the start of third quarter,” said Oren Klachkin, lead U.S. economist at Oxford Economics in New York. “But with producer prices running hot and the recovery tilting in favor of high-contact services, we’re likely to see a gradual moderation in real equipment spending growth in the second half of 2021.”
Last month’s unchanged reading in orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, followed an upwardly revised 1.0% increase in June. These so-called core capital goods orders were previously reported to have advanced 0.7%.