WASHINGTON (Reuters) -New orders for key U.S.-manufactured capital goods surged in November amid strong demand for machinery, while new home sales rebounded after being weighed down by hurricanes, offering more signs that the economy is on solid footing as the year ends.
But concerns over plans by President-elect Donald Trump’s incoming administration to impose or massively raise tariffs on imports could slow momentum next year, with other data on Monday showing consumer confidence slumping in December. Consumers, however, remained upbeat on the labor market’s prospects.
The reports followed on the heels of strong consumer spending data last week. They underscored resilience in the economy that prompted the Federal Reserve last week to project fewer interest rate cuts in 2025.
“That strength is consistent with our view that business equipment spending growth will accelerate gently next year,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics. “The continued buildout of AI and spillovers from the boom in new factory construction over the past few years will provide a continued tailwind.”
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 0.7% after dipping 0.1% in October, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders gaining 0.1%.
Other data from the Census Bureau showed new home sales jumped 5.9% to a seasonally adjusted annual rate of 664,000 units in November. But rising mortgage rates, in tandem with the 10-year Treasury yield, pose a challenge next year.
Core capital goods orders increased 0.4% year on year. Shipments of core capital goods rose 0.5% after advancing 0.4% in October. Business investment has largely held up despite the U.S. central bank’s aggressive monetary policy tightening in 2022 and 2023 to tame inflation.
The Fed last week cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range. The central bank has reduced borrowing costs by a full point since it began its easing cycle in September.
It forecast only two rate cuts next year, in a nod to the economy’s continued resilience and still-high inflation.
In September, Fed officials had forecast four quarter-point rate cuts next year. The shallower rate cut path in the latest projections also reflected uncertainty over policies, including tariffs, mass deportations of immigrants in the country illegally and tax cuts, expected from the Trump administration.
STRONG LABOR MARKET VIEWS
Consumers have started taking note of the potential negative impact of tariffs on the economy. A survey from the Conference Board on Monday showed 46% of consumers expected tariffs to raise the cost of living. That contributed to the consumer confidence index plunging 8.1 points to 104.7 in December, erasing all the gains following Trump’s Nov. 5 victory.
Consumers remained upbeat on the labor market, the main driver of the economy through consumer spending.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, increased to a seven-month high of 22.2 from 18.4 in November. This measure correlates to the unemployment rate in the Labor Department’s monthly employment report. The unemployment rate is currently at 4.2%.
“Consequently, recent readings, along with more stability in continuing claims, suggest the unemployment rate will not rise further in December, and could decline from November’s high-side 4.2% reading,” said Abiel Reinhart, an economist at JPMorgan.
Stocks on Wall Street were mixed. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.
Orders for machinery jumped 1.0%. Electrical equipment, appliances and components orders increased 0.4%. There were also increases in orders of primary metals.
But orders for computers and electronic products fell, as did those for fabricated metal products.
Orders for transportation equipment declined 2.9%, pulled down by a 7.0% drop in commercial aircraft orders. Boeing reported on its website that it had received 49 aircraft orders, down from 63 in October.
Commercial aircraft shipments declined further, likely weighed down by a seven-week strike at Boeing’s West Coast factories, which halted production of its best-selling 737 MAX as well as 767 and 777 wide-body planes. Boeing has also been dogged by safety concerns.
Aircraft accounted for the robust increase in business spending on equipment in the third quarter.
While economists expected that the decline in aircraft orders would be a drag on business spending on equipment in the fourth quarter, the hit was likely to be limited by the strong rise in orders for core capital goods.
Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, dropped 1.1% after increasing 0.8% in October. The decline mostly reflected the weakness in commercial aircraft orders.
“They will be merely unchanged quarter-on-quarter in fourth quarter, if they remain at November’s level in December,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
The Atlanta Fed is forecasting gross domestic product increasing at a 3.1% rate in the fourth quarter. The economy grew at a 3.1% pace in the third quarter.
(Reporting by Lucia Mutikani; Editing by Mark Porter and Howard Goller)
