Hours: Monday - Friday 8:00 am - 5:00 pm

Resources

Business orders for equipment rise despite higher borrowing costs

REAL ECONOMY BLOG | July 27, 2023

Authored by RSM US LLP


Business investment on productivity-enhancing equipment continues to be one of the brightest spots across the U.S. economy.

Encouraged by spending on infrastructure and manufacturing, along with the promise of artificial intelligence, businesses were not afraid to spend more on capital goods, which should help boost the economy for years to come.

New orders for core capital goods, a proxy for business investment, came in higher than forecast in June, rising by 0.2%, the Commerce Department reported on Thursday.

capital goods orders

That was equivalent to a 2.6% increase for core capital goods orders on a three-month moving average annualized basis, up significantly from 0.8% in the prior month.

While shipments of the same category stayed flat in June, the three-month moving average annualized rate rose to 1.9% from 1.5%.

Strong business spending was consistent with Thursday’s report on second-quarter gross domestic product, which showed a significant 9.7% increase in equipment spending after dropping by 8.9% in the first quarter.

Inside the capital goods report, growth was broad-based. Orders for computers, electronics and electrical equipment led the increases of core capital goods, rising by 1.5%.

A bumpy road ahead

But can this momentum continue? The answer will come from real interest rates—the true borrowing costs after inflation is controlled for—as they turn positive while the Fed holds rates steady amid falling inflation.

In principle, rising real rates should make it harder for investment spending to grow further. But as competition in the age of artificial intelligence increases, investment on critical infrastructure and equipment is more of a necessity than a luxury.

That implies a K-shaped path for investment, with cash-rich companies continuing to spend on new technologies like AI while others that are struggling with debt pull back on spending.

Let's Talk!

Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Tuan Nguyen and originally appeared on 2023-07-27.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/business-orders-for-equipment-rise-despite-higher-borrowing-costs/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how Condley and Company can assist you, please call (325) 677-6251.

Share This