US business spending picking up, but may slow in Q2

WASHINGTON: New orders for U.S.-made capital goods unexpectedly fell in February, but a surge in shipments amid demand for machinery and electrical equipment supported expectations for an acceleration in business investment in the first quarter.

Manufacturing is recovering from a prolonged slump, driven by the energy sector, bucking a slowdown in the broader economy.  The Federal Reserve last week described business investment as appearing to have "firmed somewhat."

"The evidence is building that manufacturing activity is on something of an upswing and that capital spending on business equipment is poised to advance for the second consecutive quarter," said John Ryding, chief economist at RDQ Economics in New York.

The Commerce Department said on Friday that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 percent last month after rising 0.1 percent in January. That suggested a slowdown in business spending in the second quarter.

Shipments of these so-called core capital goods jumped 1.0 percent after declining 0.3 percent in January.

Core capital goods shipments are used to calculate equipment spending in the government´s gross domestic product measurement.

Last month´s jump reflected increases in orders at the end of 2016.

Orders for machinery inched up 0.1 percent while shipments increased 0.9 percent. Orders for electrical equipment, appliances and components advanced 2.2 percent, the biggest increase in seven months, and shipments rose 1.5 percent.

"What the healthcare bill does is serve as the first litmus test of the Trump/Republicans' ability to deliver on important legislative initiatives," said Steven Ricchiuto, chief U.S. economist at Mizuho Securities in New York. "If they fail at this then the prospects for tax reform, infrastructure and defense spending will need to be rethought."

A recovery in oil prices from multi-year lows is driving demand for equipment in the energy sector, helping to lift the manufacturing sector.

Manufacturing, which accounts for about 12 percent of the U.S. economy is also being underpinned by a burst of confidence amid promises by the Trump administration to slash taxes for businesses, boost infrastructure spending and repeal some regulations.