WASHINGTON (Reuters) – Incoming orders for capital goods from the US contracted for the second year in a row in September, and the trade deficit continued to rise in the face of rising imports, suggesting moderate economic growth in the third quarter.
US-made plywood is shown for sale in Los Angeles, California, USA, on April 26, 2017. REUTERS / Mike Blake
But the pace of growth was probably solid, and on Thursday there was other data that rose in both wholesale and retail stocks last month. The economy is supported by a worsening labor market, which is gradually boosting wage growth.
The Department of Commerce said orders for non-military capital goods excluding airplanes, a closely watched proxy for corporate spending plans, declined 0.1 percent last month, with demand for fabricated metals and electrical appliances, equipment and components slipping.
This was followed in August by a decline of so-called Core Capital Goods Order by 0.2 percent. Reuters analysts predicted that core capital goods orders rose 0.5% last month. Core capital goods orders increased by 6.6 percent compared to the previous year.
Deliveries of core capital goods remained unchanged in September for a second month in a row. Core capital shipments are used to calculate equipment expenditures in measuring the state's gross domestic product.
Enterprise equipment spending slows after growing rapidly for more than a year. It was supported by Trump's $ 1.5 trillion tax cut package, which included a drastic reduction in corporate tax rates.
However, lower taxes are offset by the government's "America First" policy, which has led to a fierce trade war between the United States and China, and "tit-for-tat" deals with other major trading partners.
Companies including Caterpillar Inc (CAT.N.), 3M Co (MMM.N) and Ford Motor Co (F.N) have complained about rising production costs due to tariffs on imported steel and other raw materials.
In its Beige Book report, released Wednesday, the Federal Reserve said, "Manufacturers reported that finished goods prices are rising out of necessity as the cost of commodities, such as metals, rises, which they attribute to tariffs."
In another report released on Thursday, the Commerce Department said the trade deficit had risen by 0.8 percent to $ 76.0 billion in September. Exports of goods rose by $ 2.5 billion to $ 141.0 billion last month. However, they were offset by an increase in imports of $ 3.1 billion to $ 217.0 billion.
The expected slowdown in GDP growth due to the worsening trade deficit is likely to be offset somewhat by an increase in inventory investment. The department said wholesale inventories rose 0.3 percent last month. Retail inventories gained 0.1 percent.
Growth estimates for the third quarter are above annualized 3.0 percent. The economy grew by 4.2 percent in the second quarter. The government will publish its GDP growth data for the third quarter on Friday.
US equity index futures were higher on Thursday, while US Treasuries quoted lower. Dollar .DXY was weaker against a basket of currencies.
Thursday's third Labor Department report showed that initial claims for state unemployment benefit increased by 5,000 to a seasonally adjusted 215,000 in the week ended Oct. 20. In the week ended September 15, claims fell to 202,000, the lowest since November 1969.
The economists polled by Reuters forecasted a rise in claims to 214,000 last week. The four-week moving average of initial applications, which is considered to be a better measure of labor market development in week-to-week volatility, remained unchanged at 211,750 last week.
The labor market is considered close or full-time, with the unemployment rate close to a 49-year low of 3.7 percent. The economy has a record 7.14 million vacancies, indicating a shortage of skilled labor.
A tightening of labor market conditions and a robust economy should keep the Fed on track in December to raise interest rates again. The US Federal Reserve raised interest rates for the third time this year in September, removing a reference to "expansive" monetary policy from its policy statement.
Reporting by Lucia Mutikani; Editing by Paul Simao