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Business Capital Goods Orders Rise The Most since August

Posted by Joseph Trevisani on Dec 22, 2016 1:05:03 PM

Business capital spending jumped in November hinting that the stock market euphoria since the election may be starting to have tangible economic effects.

Orders for business equipment rose 0.9 percent, more than doubling the 0.4 percent forecast and far ahead of October’s 0.2 percent increase, reported the Commerce Department on Thursday.  It was the strongest month since the 1.2 percent gain in August and the third best this year following the 2.4 percent burst in January. 

Overall durable goods orders, that is for items designed to last for at least three years, fell 4.6 percent in the month, close to the -4.8 percent prediction, as the Boeing Company of Chicago saw a large decline in orders for commercial aircraft.  Orders had climbed 4.8 percent in October. Annual orders were off 1.9 percent after rising 2.0 percent in October. 

Business capital spending, known to the government as 'capital goods orders non-defense ex-aircraft and parts’ or 'core capital goods' has been weak for more than two years with the economy being sustained  by steady if not robust consumer purchases. 

Business and consumer sentiment has rebounded strongly since the November 8th election of Donald Trump to the Presidency.  The National Federation of Independent Business Small Business Optimism Index jumped to 98.4 in November it highest reading since December 2014 and the second best score since the recession.  The preliminary University of Michigan Consumer Sentiment Survey current conditions index for December climbed to 112.1, its highest score since January 2005. 

If businesses continue to spend on productivity enhancing plant and equipment and consumers maintain their positive outlook then the virtuous economic circle of investment and job creation leading to wage increases, higher consumer spending and yet more business investment to satisfy demand could help the economy break out of the 2 percent growth slough it has been in since the end of the recession more than seven years ago.   

Shipments of these ‘core capital goods’ which are used by government statisticians to calculate gross domestic product, rose 0.2 percent in November. Though this was slightly stronger than the 0.1 percent forecast, the October result was revised down to -0.3 percent from the -0.1 percent original estimate.  

Consequently the Atlanta Federal Reserve reduced its GDPNow estimate for fourth quarter GDP to 2.5 percent from its December 16th estimate of 2.6 percent.

Durable goods orders outside the transportation sector rose 0.5 percent in November more than twice the 0.2 percent forecast. October’s result was adjusted 0.1 percent higher to 0.9 percent.

Orders for transportation equipment of all types plunged 13.2 percent in November.  Orders for non-defense aircraft and parts fell 73.5 percent, even as defense orders for aircraft and parts jumped 103.3 percent. 

A large decline in the normally volatile order book for commercial aircraft accounted for the difference between the overall and ex-transport categories last month.   Boeing said that it relieved only 13 new orders for aircraft in November down from 85 in October.  

Orders for communications equipment surged 6.7 percent, the biggest gain since the beginning of 2015. Machine tool orders increased 1.3 percent, the most since January. Orders for primary metals rose 2.3 percent following October’s 0.7 percent gain. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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