Business equipment spending rebounds

REAL ECONOMY BLOG | September 27, 2023

Authored by RSM US LLP

Business orders for equipment rebounded in August after falling for two straight months, an encouraging sign for American businesses, which should look through the current economic headwinds to prepare for a soft-landing in the economy.

Wednesday’s data on the broader economy was in line with what our proprietary RSM US Middle Market Business Index has been telling us about a potential shift in business sentiment from bracing for a recession to capitalizing on a healing supply chain and a strong economic environment.

The stronger-than-expected rebound in equipment investment should add some upside risks to our forecast for gross domestic product, which now stands at 2.9% for the third quarter.

Excluding spending on defense and aircraft, core capital goods orders—a proxy for future business investment—rose by 0.9% in August. But the series grew by only 0.4% on a three-month moving annualized basis, pointing to a slow fourth quarter for business investment.

For this quarter, shipments of core capital goods also rose sharply, increasing by 0.7% after a 0.3% decline in July. That means, on average, spending on business equipment rose by about 0.2% every month this quarter, or about 2.4% annualized.

Inside the data, five out of six categories posted an increase in the number of orders for core capital goods, with electrical equipment leading the increase with a 1.1% gain, followed by machinery and fabricated metals, both up 0.5%.

For shipments of core capital goods, the rebound was broad-based, with all categories registering increases on the month. Electrical equipment continued to lead the pack, rising by 1.0%, followed by machinery, up by 0.8%, and computers and electronics, up by 0.3%.