New Orders for US Capital Goods Rise, but Boeing Strike Impacts

New orders for major US-made capital goods surpassed expectations in December. However, business spending on equipment may have declined in the fourth quarter due to the Boeing strike, disrupting aircraft deliveries.

Core Capital Goods Orders Increase

Non-defense capital goods orders excluding aircraft, a measure of business investment intentions, increased by 0.5% following an upwardly revised 0.9% gain in November. Economists had projected a 0.3% rise in core capital goods orders.

Shipments of core capital goods also increased by 0.6%, continuing an upward trend from November.

Declines in Non-Defense Capital Goods

Overall, non-defense capital goods orders declined by 7.8%, following a 3.2% drop in November. Shipments of these goods rose by 3.5% after a 0.9% decline the previous month.

Boeing Strike Disrupts Aircraft Deliveries

A prolonged strike by Boeing factory workers in September and November halted production and delivery of aircraft. Strong aircraft deliveries had boosted business spending on equipment earlier in 2022, despite rising interest rates affecting manufacturing.

Economic Outlook

Economists believe that business spending on equipment likely had a neutral impact on GDP last quarter. The government will release its first GDP growth estimate for the fourth quarter on Thursday. Experts forecast a 2.6% annualized growth rate.

The economy grew at a 3.1% pace in the third quarter, significantly above the 1.8% rate that the Federal Reserve considers non-inflationary.

Fed Interest Rate Decision

The Federal Reserve is expected to maintain its benchmark interest rate within the 4.25%-4.50% range at the conclusion of its two-day meeting. This follows a 100 basis point reduction since September.

Business Sentiment and Policy Concerns

Business sentiment improved after President Trump's election, fueled by expectations of tax cuts and reduced regulation. However, proposed immigration and trade policies have raised concerns about rising inflation, which could limit the Fed's ability to continue cutting rates.