Orders for Long-Lasting Goods Fall for Second Straight Month
Companies pulled back on orders for long-lasting goods for the second month straight in August, a sign of weakening demand as the U.S. economy loses momentum amid high inflation and rising interest rates.
New orders for durable goods—products meant to last at least three years—declined by 0.2% to a seasonally adjusted $272.7 billion in August compared with the prior month, the Commerce Department said Tuesday. Excluding defense, new orders were down 0.9%. Orders fell a revised 0.1% in July.
Overall orders for durable goods—which include factory equipment, computers and washing machines—increased in eight of the past 12 months through August.
The figures reflect continued demand from businesses and consumers—and rising prices. Orders figures aren’t adjusted for inflation, which held close to a four-decade high last month with underlying price pressures persisting.
September surveys of purchasing managers by S&P Global and the Institute for Supply Management indicated that economic activity in the manufacturing sector has stalled in recent months. S&P Global’s U.S. manufacturing index for September was the second lowest reading since July 2020.
“New demand is stumbling,”
Shannon Seery,
an economist at Wells Fargo, said. “But there are some factors offsetting this hit to new demand that we are seeing,” she added, pointing to easing supply-chain bottlenecks and a backlog in inventories.
Ms. Seery said that a further pullback in demand would allow companies to chip away at backlogs of unfilled orders, which were up for the 24th consecutive month in August at $1,132.2 billion, according to the Commerce Department. She added that a slowdown in demand would also ease some pressure off supply chains, allowing them to further normalize.
A closely watched proxy for business investment—new orders for nondefense capital goods excluding aircraft—rose 1.3% to $75.6 billion in August compared with the previous month, the Commerce Department said.
Ms. Seery said business investment is likely to slow as the Federal Reserve continues to raise interest rates. The Fed approved its third consecutive interest-rate rise of 0.75 percentage point last week. Ms. Seery added that inflation and recession fears might also cool business investment.
“It’ll become more difficult to get credit as banks tighten their standards, and also the financing cost goes up, so not only will businesses be paying more for equipment because of inflation, they’ll also be paying more because interest rates are higher,” Ms. Seery said.
In the first eight months of the year, so-called core capital goods orders were up 9.7% compared with the same time a year ago. The business investment proxy is seen as an indicator of the economy’s future direction.
Write to Bryan Mena at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Companies pulled back on orders for long-lasting goods for the second month straight in August, a sign of weakening demand as the U.S. economy loses momentum amid high inflation and rising interest rates.
New orders for durable goods—products meant to last at least three years—declined by 0.2% to a seasonally adjusted $272.7 billion in August compared with the prior month, the Commerce Department said Tuesday. Excluding defense, new orders were down 0.9%. Orders fell a revised 0.1% in July.
Overall orders for durable goods—which include factory equipment, computers and washing machines—increased in eight of the past 12 months through August.
The figures reflect continued demand from businesses and consumers—and rising prices. Orders figures aren’t adjusted for inflation, which held close to a four-decade high last month with underlying price pressures persisting.
September surveys of purchasing managers by S&P Global and the Institute for Supply Management indicated that economic activity in the manufacturing sector has stalled in recent months. S&P Global’s U.S. manufacturing index for September was the second lowest reading since July 2020.
“New demand is stumbling,”
Shannon Seery,
an economist at Wells Fargo, said. “But there are some factors offsetting this hit to new demand that we are seeing,” she added, pointing to easing supply-chain bottlenecks and a backlog in inventories.
Ms. Seery said that a further pullback in demand would allow companies to chip away at backlogs of unfilled orders, which were up for the 24th consecutive month in August at $1,132.2 billion, according to the Commerce Department. She added that a slowdown in demand would also ease some pressure off supply chains, allowing them to further normalize.
A closely watched proxy for business investment—new orders for nondefense capital goods excluding aircraft—rose 1.3% to $75.6 billion in August compared with the previous month, the Commerce Department said.
Ms. Seery said business investment is likely to slow as the Federal Reserve continues to raise interest rates. The Fed approved its third consecutive interest-rate rise of 0.75 percentage point last week. Ms. Seery added that inflation and recession fears might also cool business investment.
“It’ll become more difficult to get credit as banks tighten their standards, and also the financing cost goes up, so not only will businesses be paying more for equipment because of inflation, they’ll also be paying more because interest rates are higher,” Ms. Seery said.
In the first eight months of the year, so-called core capital goods orders were up 9.7% compared with the same time a year ago. The business investment proxy is seen as an indicator of the economy’s future direction.
Write to Bryan Mena at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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