Orders placed with U.S. factories for business equipment declined for a second straight month and shipments matched the biggest drop since 2016, the latest sign the dimmer global growth outlook and trade tensions with China are weighing on companies.
The proxy for business investment -- bookings for non-military capital goods orders excluding aircraft -- fell 0.5% in September after a downwardly revised 0.6% drop the prior month, according to Commerce Department figures Thursday that missed estimates. The broader measure of bookings for all durable goods, or items meant to last at least three years, declined 1.1%, the most since May and also below forecasts in Bloomberg’s survey.
A separate report Thursday from the Labor Department showed initial unemployment claims fell slightly to 212,000 in the week ended Oct. 19, indicating the labor market remains generally tight. Overall, the level remains close to a half-century low as fewer people seek jobless benefits.
The sustained weakness in orders adds to signs of malaise in business investment and potentially bolsters the case for a third straight Federal Reserve interest-rate cut, a move that traders expect from policy makers next week. Data next week are forecast to show slower economic growth and payroll gains.
“There’s a lot of uncertainty hanging over manufacturing and softness in the global economy,” said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. Even so, “this expansion can go on without a large contribution from manufacturing” given that it’s a relatively small part of the economy, Sweet said.
Separate figures from the Commerce Department showed sales of new homes eased in September to a 701,000 annualized pace, while remaining close to the 729,000 rate reached in June that was the strongest of the expansion.
Not all the economic news was so grim on Thursday. A preliminary purchasing managers index from IHS Markit showed U.S. factory activity actually improved slightly in October for a second month though remained relatively subdued. In addition, the Bloomberg Consumer Comfort Index’s buying-climate gauge climbed to a fresh record, suggesting spending, the economy’s mainstay, will remain solid.
Still, cracks in manufacturing have been visible in other recent reports. One in six companies in the Philadelphia region plans to reduce capital spending next year because of President Donald Trump’s trade policies, a Fed survey showed.
Manufacturing fell deeper into contraction last month, with a main gauge dropping to the lowest since 2009, while the Fed’s measure of factory output declined by the most in five months.
The headline durable-goods figure reflects weakness in transportation equipment bookings, which dropped the most since May. Boeing Co. said earlier this month it received 25 orders in September, rebounding from August.
Shipments of non-defense capital goods excluding aircraft -- a measure used in GDP calculations -- fell 0.7%, more than forecast, after no change the prior month. The report showed the three-month annualized gain for business-equipment shipments declined, while it rose for orders, suggesting a potential stabilization for the pace of outgoing goods.
Excluding transportation equipment, which tends to be volatile, orders dropped 0.3%. Durable goods inventories expanded by 0.5% during the month, up from a 0.2% increase in the prior period.