New orders for key U.S.-manufactured capital goods increased more than expected in July, suggesting business spending on equipment got off to a strong start in the third quarter, but consumers’ deteriorating assessment of the labor market cast a pall over the economy.
The report from the Commerce Department on Tuesday also showed shipments of non-defense capital goods excluding aircraft, a closely watched proxy for business spending, surged by the most in more than two years last month. The strength in both orders and shipments of these so-called core capital goods was despite independent surveys indicating that businesses were hunkering down amid rising costs from tariffs on imports.
The upbeat data was overshadowed by a survey from the Conference Board showing consumers’ perceptions of their ability to find a job were the weakest in more than four years in August. Employment growth slowed to stall-speed during the three months through July, which economists have blamed on President Donald Trump’s protectionist trade policy.
“Businesses cannot afford to be so sanguine about tariffs,” said Tim Quinlan, a senior economist at Wells Fargo. “Increased costs are difficult to pass on in the present environment which means they must look for other ways to preserve margin. One way to do that is by keeping an eye on labor costs.”
Core capital goods orders surged 1.1% last month after a revised 0.6% decline in June, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast core capital goods orders rebounding 0.2% after a previously reported 0.8% drop in June.
Shipments of core capital goods increased 0.7%, the biggest gain since April 2023, after rising 0.4% in the prior month. These shipments go into calculation of the spending component in the gross domestic product report. Orders and shipments were also likely inflated by higher prices.
Core capital goods orders have fluctuated within a wide band this year, surging as businesses rushed to bring in goods before the Trump administration’s sweeping import duties kicked in, and declining as the front-loading abated.
The data was marred by Trump’s unprecedented move to fire Federal Reserve Governor Lisa Cook, which renewed concerns over the central bank’s independence. The dollar fell against a basket of currencies. U.S. Treasury yields rose. Stocks on Wall Street were trading lower.
Business spending on equipment slowed in the second quarter following double-digit growth in the January-March quarter. Some economists still expected business spending on equipment to weaken this quarter because of the import duties.
“Policy uncertainty is lower now but not eliminated and some key questions remain unanswered,” said Oren Klachkin, financial markets economist at Nationwide. “This will weigh on executives’ minds and restrain capital expenditures, only for projects deemed essential or worth the potential cost.”
There were solid increases in orders for machinery, electrical equipment, appliances and components, primary metals, computers and electronics, as well as fabricated metal products.
Tariffs on Consumers’ Minds
But overall durable goods orders, items ranging from toasters to aircraft meant to last three years or more, fell 2.8% as bookings for commercial aircraft declined.
Durable goods orders decreased 9.4% in June. Boeing reported on its website that it had received only 31 aircraft orders compared to 116 in June. Boeing has been the biggest winner of the White House’s trade deals and economists expect aircraft orders to rise this year.
“But significant orders for planes this year may be more a consequence of pulling forward of future orders as opposed to longer-lasting demand,” said Veronica Clark, an economist at Citigroup.
While business investment is showing resilience, consumers are increasingly worried about jobs and future income, which could hamper spending.
The Conference Board survey showed the share of consumers who viewed jobs as “hard to get” jumped to 20.0% in August, the highest since February 2021, from 18.9% in July.
The proportion saying jobs were “plentiful” eased slightly. That pushed the survey’s so-called labor market differential to 9.7 from 11.0 in July.
This measure correlates to the unemployment rate in the Labor Department’s monthly employment report.
Fed Chair Jerome Powell last week signaled a possible rate cut at the central bank’s September 16-17 policy meeting, in a nod to rising labor market risks, but also added that inflation remained a threat. The U.S. central bank has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.
The Conference Board survey also underscored the growing inflation concerns, noting “consumers’ write-in responses showed that references to tariffs increased somewhat and continued to be associated with concerns about higher prices.”
Consumers’ average 12-month inflation expectations rose to 6.2% after easing for three straight months.
“This report highlighted the problem facing the Fed,” said Conrad DeQuadros, senior economic advisor at Brean Capital. “The Fed focuses more on hard data, the employment report, and longer-term inflation expectations, but the divergence is worth noting.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
