Canadian Manufacturing

U.S. businesses stepped up capital investment in November

The figures suggest U.S. businesses may be loosening their purse strings when it comes to capital equipment

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WASHINGTON—U.S. businesses stepped up their spending on industrial machinery, steel, and other big-ticket items last month, a sign that one of the economy’s weak spots may be improving.

The Commerce Department said that a measure that tracks business investment rose 0.9 per cent in November, after a slight 0.2 per cent rise the previous month. Yet those gains follow a 1.5 per cent drop in September.

Orders for all big-ticket factory goods fell 4.6 per cent, mostly because of a sharp fall in demand for commercial aircraft, a volatile category. Excluding transportation-related goods, orders rose 0.5 per cent.

The data “looked awful in the headline tally, but the headline hides a solid performance in core capital goods and total durables,” Michael Montgomery, U.S. economist at IHS, said. “The manufacturing sector is looking better for a change.”

Aircraft orders dropped 73.5 per cent in November, after jumping 94.6 per cent in the previous month. Boeing reported receiving orders for 13 planes last month, after 85 in October.

The figures suggest businesses may be loosening their purse strings after more than a year of cutbacks that have weighed on the economy. Business investment spending is down 3.9 per cent this year compared with 2015.

Companies have reduced their spending on equipment for four straight quarters, the longest streak since the recession. A drop in oil and gas prices has been a key culprit: Drilling companies have cut their orders for steel pipe and machinery in response.

Manufacturers have also struggled with a stronger dollar and weak economies overseas, which have harmed exports. The dollar’s rise in value makes exports more expensive and imports cheaper.

Overall factory output has perked up slightly in the past several months, according to the Federal Reserve, but it is still mostly flat compared with a year ago.

Still, the economy expanded at a 3.5 per cent annual rate in the July-September quarter, the fastest pace in two years. Americans spent at a healthy pace, and businesses did spend more on plants, office buildings and other structures.

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