Business Spending on Equipment Gaining Momentum

Fresh orders for key capital goods made by the United States increased more than it was expected in the month of April and the rebounding of shipments suggested that the business spending on equipment was catching up after slowing down at the end of the first quarter of the year 2018. On Friday, a report from the Commerce Department of the United States added to the data on consumer spending that clearly pointed to the gaining of momentum in the economy. The strong business and consumer spending supported the expectations that the Federal Reserve will increase the rates of interest in the coming month. The central bank of the United States raised costs of borrowing in the month of March and forecasted at least two more increases in the rates for this year.

Orders for non-defense capital goods which excluded aircraft, a closely monitored proxy for business spending plans, jumped about by one percent in the previous month. This particular increase in so-called core capital goods orders resulted in reversing the drop by 0.9 percent. The Economists polled by Reuters had already forecast that core capital goods orders will be increasing by about 0.7 percent in the previous month. However core capital goods orders raised by about 6.6 percent on a yearly basis. Shipments of core capital goods increased by about 0.8 percent in the previous month after falling by 0.7 percent in the month of March. Shipments of core capital goods are actually used for the calculation of equipment spending in the gross domestic product measurement by the government.

Business spending is being supported by the 1.5 trillion dollar cut package of income tax by the administration of the US President, Donald Trump which came into effect in the month of January. The government cut the rate of the corporate tax to 21 percent from the previously existing 35 percent. A strong economy and rising prices of oil are also underpinning investment. The amount of business spending on equipment has also reduced in the first quarter after a two-digit growth in the second half of the year 2017. On Friday, the price of Treasuries, of the United States was trading much higher while stock index futures fell weak. The US dollar rose against a number of currencies.

June 24, 2018 - 18:07
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