WASHINGTON: New orders for key US-made capital goods increased in July, though the pace slowed from June's robust gain, suggesting the rebound in business investment would be gradual amid uncertainty about the course of the Covid-19 pandemic.
The report from the Commerce Department on Wednesday showed an uneven recovery in investment as the coronavirus crisis shifts spending away from equipment used in the services industries such as restaurants and bars to purchases of goods like home electronics.
"While orders are nearly back to their pre-pandemic levels, the slowing pace of gains suggests it will take a while for activity to fully recover," said Lydia Boussour, a senior US economist at Oxford Economics in New York.
"We do not expect business investment to reach its pre-pandemic level before mid-2022."
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.9% last month. These so-called core capital goods orders jumped 4.3% in June, which was the largest gain in six years.
Core capital goods orders are slightly below their pre-pandemic level. They fell 1.9% on a year-on-year basis in July. Last month's rise in orders matched economists' expectations.
Though new coronavirus cases have subsided after a broad resurgence following the reopening of businesses in May, the path of the pandemic remains unclear, with many hot spots remaining. There are growing signs that the economy's recovery from the pandemic is slowing or even reversing.
At least 28 million people are on unemployment benefits and bankruptcies are rising as government aid rolled out at the start of the pandemic dries up. Regional Federal Reserve surveys showed a moderation in factory activity in the New York state and the mid-Atlantic regions this month. Consumer confidence fell to a six-year low in August.
Core capital goods orders last month were supported by demand for machinery, fabricated metals products, computers and electronic products and electrical equipment, appliances and components. Unfilled core capital goods orders edged up 0.1%. That followed a 0.2% gain in June.
Shipments of core capital goods increased 2.4%. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. They shot up 3.8% in June, but remain 0.4% below their February level.
Business investment tumbled at a record 27% annualized rate in the second quarter, with spending on equipment collapsing at an all-time pace of 37.7%. Investment in equipment has now contracted for five straight quarters.
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