U.S. Capital Expenditure Falters as Economy Worsens

Daily Forex Fundamentals | Written by TD Bank Financial Group | Jan 29 09 15:53 GMT |

U.S. durable goods orders continue to weaken dramatically. Core capital goods orders dropped a big 2.8% M/M. Overall, the report highlights the worsening level of capital expenditure in the U.S. U.S. durable goods orders posted a worse than expected 2.6% M/M in December, following the downwardly revised 3.7% M/M drop in November. The decline was worse than the 2.0% M/M drop expected by the markets, and was the fifth consecutive month in which orders have either fallen or remained flat. Excluding transportation, orders were down by a more dramatic 3.6% M/M, again slightly worse than the -2.7% M/M expected by the markets. Core capital goods orders, which exclude defense and aircraft orders, were also very weak, falling by 2.8% M/M, undoing the modest 1.7% M/M gain the month before. On an annual basis, total orders are down a massive 19.7% Y/Y, while orders ex-transportation and core capital goods orders are also down by double-digits, falling 15.0% Y/Y and 12.5% Y/Y, respectively. On a 3-month annualised basis, core capital goods orders are down a whopping 32.5%. And with shipments down 0.7% M/M, the inventory to shipments ratio spiked to 1.80 in December from 1.78 in November, and is now at its highest level since the early 1990s. To put it mildly, capital expenditure by U.S. businesses is well off its normal pace as new orders have now fallen out of bed, and there is little to suggest that things will improve in a meaningful way any time soon. In fact, we expect orders to decline even further as the worsening economic conditions continue to dampen the investment and production decisions of U.S. businesses, in the face of plunging demand for their products. The report also speaks to the risk of a Q4 GDP figure that could flirt with -6.0% Q/Q ann. TD Bank Financial Group The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.