Business Equipment Orders Fall Amid Election/Inflation Uncertainty

U.S. companies ordered less business equipment last month, new government data shows.

Figures released Monday (Aug. 26) by the Commerce Department show that the value of core capital goods, typically seen as proxy for spending on equipment — outside of military hardware and aircraft — fell 0.1% in July following a revised 0.5% gain the prior month.

Orders for durable goods increased by 9.9%, but declined 0.2% when excluding transportation equipment. The data showed orders dropping for computers, communications and electrical equipment, motor vehicles and car parts.

“A variety of factors driving uncertainty about economic growth and the durability of consumer demand — including the November election — is likely leading firms to delay investment,” said Eliza Winger of Bloomberg Economics.

That means factory output could struggle to gain momentum in the months to come, the Bloomberg report said. At the same time, the notion that the Federal Reserve will reduce interest rates and help strengthen demand has the potential of encouraging businesses to proceed with new investments, the report added.

Meanwhile, a recent survey by the Federal Reserve Bank of Atlanta found that companies year-ahead inflation expectations have stayed “relatively unchanged” in August, remaining just above where they were before the pandemic.

On average, businesses expect inflation of 2.2%, according to Fed’s Business Inflation Expectations (BIE) Survey for August. That number is down slightly from the 2.4% recorded in its July survey.

“Year-ahead unit cost expectations have fallen meaningfully since hitting a peak of 3.8 percent in April 2022 but remain somewhat elevated relative to their pre-pandemic average of 2.0 percent (from January 2017 through December 2019),” the Fed said in its report on the survey.

Another survey by the Cleveland Fed found business leaders are growing more optimistic about the way inflation is going, with executives saying in July that they expect inflation to be 3.4% over the next 12 months, down from the 3.8% in April.

“The Cleveland Fed reports these survey data because business leaders’ inflation expectations can influence the prices their firms charge customers, and these prices can, in turn, influence the path of inflation,” the organization said in a news release.

Yet another recent survey showed that American consumers’ year-ahead inflation expectations also remained unchanged at 2.9%.

The University of Michigan Survey of Consumers’ preliminary results for August found that consumers’ year-ahead inflation expectations had stayed the same as the prior month and keeping within the 2.3% to 3% range recorded during the two years leading to the pandemic.