U.S. core capital goods orders unexpectedly fall; shipments rise moderately

Globe and Mail

25-07-2025

New orders for key U.S.-manufactured capital goods unexpectedly fell in June while shipments of those products increased moderately, suggesting that business spending on equipment slowed considerably in the second quarter.
Front-loading of activity ahead of President Donald Trump's aggressive and broad tariffs on imports resulted in business spending on equipment growing in the first quarter at the fastest pace since the third quarter of 2020.
While some of the tariff-related spending to avoid even higher goods prices has persisted, uncertainty over where tariff levels will eventually settle has prompted some businesses to hold off capital expenditures.
'This softness is consistent with the torrent of anecdotal reports in recent months that businesses are delaying their investment plans until they have more clarity on tariffs and the rest of the policy landscape,' said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7% last month after an upwardly revised 2.0% rebound in May, the Commerce Department's Census Bureau said on Friday.
Economists had forecast that these so-called core capital goods orders would rise 0.2% after a previously reported 1.7% jump in May. Shipments of core capital goods, which go into the calculation of the equipment spending component in the gross domestic product report, increased 0.4% after rising 0.5% in May. Those figures are not adjusted for inflation.
Economists said the data, when accounting for inflation, suggested that business spending on equipment sharply moderated last quarter after surging at a 23.7% annualized rate in the first quarter. Some even projected a mild contraction.
'Nominal core shipments have risen steadily since late last year, but almost all of this increase has reflected higher capital goods prices rather than stronger volumes,' said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
'Underlying equipment investment probably will continue to grind lower, despite the tax advantages granted by the One Big Beautiful Bill, as uncertainty around trade policy will prompt many companies to keep capex projects on hold.'
The non-partisan Congressional Budget Office has estimated that the One Big Beautiful Bill's tax cuts and spending provisions would add $3.4 trillion to the nation's $36.2 trillion debt and only increase inflation-adjusted GDP by an average of 0.5% over 10 years. Trump signed the bill into law earlier this month. A survey from S&P Global on Thursday showed its flash manufacturing PMI contracted in July for the first time since December. S&P Global noted that 'any protectionist benefits of import tariffs were often outweighed by concerns over higher prices and rising costs.'
The Atlanta Fed is forecasting economic growth rebounded at a 2.4% annualized rate in the second quarter, largely reflecting a reversal in import flows, which contributed to GDP contracting at a 0.5% pace in the first quarter. The government is scheduled to publish its advance estimate of second-quarter GDP next week.
Nondefense capital goods orders plunged 24.0% in June after vaulting 50.0% in May. Shipments of these orders declined 0.9% after being unchanged in May.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, decreased 9.3% in June as commercial aircraft bookings came off their lofty levels. That partially reversed the 16.5% surge notched in May.
Commercial aircraft orders tumbled 51.8% last month after soaring 231.6% in the prior month. They were in part boosted by an order for 150 commercial planes placed with Boeing by Qatar Airways during Trump's visit to the Gulf Arab country in May.
Boeing reported on its website that it had received orders for 116 planes in June compared to 303 in May. The plane maker stands to benefit from trade deals being sought by the Trump administration.
'This may keep orders somewhat elevated, which should support production of planes,' said Veronica Clark, an economist at Citigroup. 'Deliveries of planes internationally would boost GDP through exports rather than business investment.'