Business Equipment Spending Plunges in an Ominous Sign for US Economy

Autonomous robots assemble an X model SUV at the BMW manufacturing facility in Greer, S.C., on Nov. 4, 2019. (Charles Mostoller/Reuters)

Spending on business equipment fell in the month of September amid an overall decline in manufacturing activity, signaling a lack in business confidence across the economy.

Core capital goods orders—non-defense capital goods orders excluding aircraft—fell by 0.7 percent in September, to $74.77 billion from $75.33 billion in the previous month, according to an Oct. 27 press release from the U.S. Census Bureau. Core capital goods orders, a closely watched proxy for business-spending plans, measures cost of orders received by manufacturers of capital goods, which refer to goods planned to last for three or more years.

The market was estimating a 0.5 percent gain for the month, according to FX Street. In August, core capital goods orders had grown by 0.8 percent, which followed a 0.7 percent increase in July.

Shipments of core capital goods fell by 0.5 percent in September, following the 0.2 percent and 0.6 percent increases in August and July, respectively.

In total, new orders for manufactured goods rose by 0.4 percent in September, while shipments increased by 0.3 percent. The uptick in new orders was largely thanks to a 2.1 percent spike in orders for transportation equipment.

The dismal business equipment spending data come as the S&P Global Flash U.S. Manufacturing Purchasing Managers’ Index fell to 49.9 in October, down from 52 in September, according to a press release on Oct. 24.

“New orders fell back into contraction territory following a marginal expansion in September. The decrease in client demand was solid and the sharpest since May 2020,” the release said.

“Alongside domestic inflationary pressures, total new orders were dampened by challenging economic conditions in key export destinations and dollar strength, as new export orders fell steeply.”

Manufacturing Slowdown

The Federal Reserve Bank of Richmond’s Manufacturing Index also registered a decline this month, moving from zero in September to negative 10 in October.

“The average growth rate of prices paid and prices received both increased again in October, after moderating in September. Expectations for both over the next 12 months also increased slightly from September,” the Fed report said.

A recent survey by the National Association of Manufacturers, which represents 14,000 companies, found that only 76 percent of manufacturers reported positive feelings about the economic outlook in September, down from 88 percent between January and March.

Over three-fourths of manufacturers felt supply issues were the biggest challenge faced by their business in August. Companies expressed concerns about disruptions to the supply chains as well as certain immigration and tax policies. Two-thirds of members believe a recession is on the horizon.

According to McKinsey, the manufacturing sector employs around 12 million people in the United States and accounts for $2.3 trillion of the country’s gross domestic product. It makes up 60 percent of America’s exports, 35 percent of productivity growth, and 70 percent of business research and development spending.