Orders for durable goods and business investment rose more than anticipated in August suggesting continued growth in the economy despite the lack of progress on legislation in Washington and disruption from Hurricanes Harvey and Irma.
Overall orders for goods designed to last more than three years jumped 1.7 percent after falling 6.8 percent in July and rising 6.5 percent in June, according to the Commerce Department on Wednesday. The median estimate was for a 1 percent gain.
Business spending, represented by so-called 'core capital goods' jumped 0.9 percent, three times the 0.3 percent projection and the prior month was revised up to 1.1 percent from 1.0 percent. These non-defense capital goods orders excluding aircraft point to business confidence that should help keep the economy at its par of 2.2 percent growth. Core goods orders were up 3.3 percent on the year.
Shipments of these core goods which are used by the government to calculate business equipment spending in gross domestic product, rose 0.7 percent following July's 1.1 percent advance.
This indication of a quickening in business spending helped boost the yield on the two-year Treasury four basis points to 1.48 percent its highest return since November 2008 and likely increased the possibility of a 0.25 percent hike in the Fed Funds rate in December.
The dollar gained against all its major counterparts on the potential for higher U.S. rates.
The economic impact from this season's two major hurricanes is uncertain, with many economists expecting an initial hit followed by a sharp recovery as rebuilding commences.
The Atlanta Federal Reserve GDPNow model of third quarter annualized economic growth dropped to 2.1 percent Wednesday from 2.2 percent on September 19th. The bank cited a projection that real residential investment growth would decline to -5.2 percent from -2.6 percent following recent housing market data.
The pending home sale index from the National Association of Realtors fell 2.6 percent in August to a 19 month low. It was the fifth decline in six months.
Although business spending could get an additional increase from the administration’s plans for tax reform the future of such legislation is uncertain with the Republicans still smarting from the failure to alter health care. President Trump and Republicans in Congress are proposing a 20 percent corporate income tax rate and maximum rate of 35 percent for individual Americans.
Chief Market Strategist