GoldPrice.

Durable goods orders in the US fell unexpectedly in August, although shipments saw a modest increase. Orders for goods meant to last three years or more rose 0.2% after a major increase of 0.2% the month before, indicating weaker business investment.

Key Takeaways

• Orders for durable goods, any products designed to have a lifecycle of three years or more, rose 0.2% in August after rising 2% the month before.
• Business investment, which fell at the fastest rate in 3 year in Q2 2019, may be dropping further according to the latest durable goods orders report.
• Shipments saw a modest rebound after poor activity the month prior.

The Commerce Department stated in a Friday report that orders for non-defense capital goods, excluding the volatile component of aircraft, dropped 0.2% last month due to reduced demand for electrical equipment, appliances and components, and computers and electronic products. When excluding aircraft, this measure of durable goods called core-capital goods is a key metric for business investment and spending.

Core capital goods orders rose 1.1% annually, and shipments of those goods rose 0.4% last month. This metric is used to gauge equipment spending in the government’s GDP calculations. Core capital shipments fell by -0.6% in July, with the 15-month trade war blamed for the sharp drop in activity. Core capital goods orders in July were revised from 0.2% growth to zero growth.

This suggests relatively flat demand year-over-year for the broader measure of durable goods. At the same time, new orders for core capital goods—a proxy for capital spending in the U.S. economy—fell 0.2% in August, and on a year-over-year basis, this figure decreased 0.3%. pic.twitter.com/ZUTdyNZA53

— Chad Moutray (@chadmoutray) September 27, 2019

Business Investment dropped by -1.0% in Q2, the largest drop since Q4 2015, according to a report released on Thursday. The manufacturing industry has also suffered under the trade war, with output contracting for two consecutive quarters. Manufacturing, which accounts for 11% of the economy, is also being impacted by reduced demand for Boeing aircraft due to the fatal flaws in its 737 Max aircraft, along with slower global economic activity overall.

Boeing reported that it received just six orders for aircraft in August after getting 31 the month before. Orders for transportation equipment dropped -0.4% after a 7.2% increase in July, and orders for non-defense aircraft and parts dropped -17.1%. Motor vehicles and parts orders dropped -0.8%.

Orders for electrical equipment, appliances and components dropped 1.3% in August, the biggest drop in almost a year November 2018. Computers and electronic products also saw reduced demand, although machinery orders rose by 0.6%, and primary and fabricated metal products also saw increases.

Expert Outlook

Federal Reserve Chair Jerome Powell said last week that the trade war tensions “have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports,” adding that the conflict poses a threat to the 11-year period of economic expansion in the US, the longest in the nation’s history. Powell also added that the central bank had heard from investors that trade war uncertainty “has discouraged them from investing in their businesses.”

The issues around the trade war were a leading factor in the Fed’s decision to cut interest rates again last Wednesday after doing so in July for the first time in ten years.

Market Reaction

Gold prices are facing significant selling pressure, slipping well below the crucial psychological support held at $1,500. Spot gold last traded at $1,492.12/oz, down -1.02% with a high of $1,509.28/oz and a low of $1,487.54/oz.