US Core Capital Goods Orders Rise, Inflation Expectations Improve

[BumRushDaShow]

Source: US News and World Report/Reuters

May 24, 2024, at 8:45 a.m.


WASHINGTON (Reuters) - New orders for key U.S.-manufactured capital goods rebounded more than expected in April and shipments of those goods also increased, suggesting a moderate improvement in business spending on equipment early in the second quarter.

Nonetheless, business investment on equipment continues to be hamstrung by higher borrowing costs. That, together with a strong dollar and weak global demand, is keeping manufacturing, which accounts for 10.4% of the economy, on the ropes.

"Despite elevated borrowing costs and stricter loan standards, U.S. business investment could pick up in the second quarter," said Sal Guatieri, a senior economist at BMO Capital Markets. "However, the manufacturing sector, as a whole, is expected to remain in low gear until interest rates ease, the greenback weakens, and the global economy strengthens."

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.3% last month after an upwardly revised 0.1% dip in March, the Commerce Department's Census Bureau said on Friday. Economists polled by Reuters had forecast these so-called capital goods orders would edge up 0.1% after declining by a previously reported 0.2% in March.

Read more: https://money.usnews.com/investing/news/articles/2024-05-24/us-core-capital-goods-orders-and-shipments-rebound-in-april

[progree]

1. Inflation expectations

The Fed is expected to start lowering borrowing costs in September. It has kept its policy rate in the 5.25%-5.50% range since July. The prospect of policy easing by the end of the third quarter received a boost from a University of Michigan survey on Friday showing consumers' inflation expectations improved in late May after deteriorating early in the month.

The survey's 12-month inflation expectation fell to 3.3% from 3.5%. The five-year inflation outlook improved to 3.0% from 3.1% earlier this month.

Consumer sentiment, however, fell to a five-month low on mounting fears about borrowing costs staying high. At face value, pessimism among households would imply slower consumer spending. But the relationship between the two has been weak.

The next inflation report is the PCE Index (Personal Consumption Expenditures Index) coming out next Friday, May 31. This is the Fed's favorite, particularly the core PCE.

In the meantime I posted a gloomy looking graph of the latest inflation report -- the CPI -- today in the Economy Group. As to why the Fed sees inflation as being sticky and "elevated".
https://www.democraticunderground.com/111698136