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U.S. Durable Goods Data Signal Weaker Business Spending

Posted by Reuters  |  January 27,2015  |  09:23 AM
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9:23 AM

01/27/15

WASHINGTON (Reuters) – A gauge of U.S. business investment plans fell for a fourth straight month in December, a potential sign that slowing global growth and falling crude oil prices were starting to have an impact on the economy.

The Commerce Department said on Tuesday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.6 percent last month after a similar decline in November.

Economists polled by Reuters had forecast core capital goods orders increasing 0.5 percent in December.

“A global slowdown, strong dollar and weakness in the oil sector all likely contributed to orders weakness in the second half of last year,” said Chris Low, chief economist at FTN Financial in New York.

“The drop in capex will weigh on growth, though stronger consumer spending should keep GDP from slowing too much.”

U.S. stock index futures tumbled after the report, while prices for U.S. government debt extended gains. The dollar fell against a basket of currencies.

While some of the declines reflect volatility associated with the monthly data, there is little doubt that capital spending took a step back in the fourth quarter after two quarters of strong back-to-back increases.

A slowing global economy, strong dollar and plummeting crude oil prices have made businesses a bit cautious about undertaking new investments.

Shipments of core capital goods, which are used to calculate equipment spending in the government’s gross domestic product measurement, fell 0.2 percent last month after slipping 0.6 percent in November and dropping 0.9 percent in October.

That could see economists lower their fourth-quarter GDP estimates. Business spending on equipment was already expected to have been a mild boost to economic growth in the fourth quarter.

With core capital good orders falling, overall orders for durable goods – items ranging from toasters to aircraft that are meant to last three years or more – tumbled 3.4 percent in December.

That also reflected a 9.2 percent drop in orders for transportation equipment after Boeing received fewer aircraft orders than in November. Automobile orders increased 2.7 percent last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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