Businesses Curb Spending on Durable Goods

A strong dollar and economic turmoil overseas may be restraining demand for American-made goods

WASHINGTON—Orders for long-lasting manufactured goods fell in August, a sign that a strong dollar and economic turmoil overseas may be giving firms pause before they invest in new equipment.

New orders for durable goods—products designed to last at least three years, such as long-haul trucks and dishwashers—fell a seasonally adjusted 2% in August from a month earlier, the Commerce Department said Thursday.

August’s decline reflects a slight pullback in business investment in new machinery, electronics and other goods, after two months in which spending rose. New orders for nondefense capital goods excluding aircraft, considered a proxy for business spending on equipment and software, fell by 0.2% in August after posting increases in June and July. That figure has fallen month over month in five out of the past eight months. On a year-over-year basis, it has fallen for seven straight months.

“This is not a one-off month, this is a long-standing trend,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. “What describes this recovery is that we’re not seeing business investment. It’s pointing the finger at other issues—regulation, tax uncertainty, rising health-care costs. These are things that can’t be fixed in one quarter’s time.”

Thursday’s number follows other recent signs of weakness in the industrial sector. Industrial production—a measure of output in the manufacturing, utilities and mining sectors—fell a seasonally adjusted 0.4% in August, according to a Federal Reserve report released earlier this month. A survey of supply-chain executives conducted by the Institute for Supply Management found U.S. manufacturing expanded at a slower pace in August than July, with the group’s manufacturing purchasing managers index showing its weakest reading since May 2013.

August’s overall decline was driven by a sharp drop in new orders for transportation equipment, which dropped 5.8% after rising in June and July. Excluding the transportation sector, orders were virtually flat. Excluding defense, another volatile sector, new orders fell by 1%.

Durable-goods statistics are volatile and subject to large revisions. The rise in July’s durable-goods orders was revised to 1.9% from the previously estimated 2.2% increase. 

J.P. Morgan Chase chief U.S. economist Michael Feroli said business spending remains relatively stable beyond the monthly gyrations. “There’s certainly no sense of panic in the way businesses are spending in terms of capital equipment,” he said. “There’s also no sense of exuberance. It’s a steady, sober pace of expansion.”

Improvement in the manufacturing sector has been choppy as a strong dollar has made U.S.-produced goods more expensive for overseas buyers.

“In general, manufacturing has been weaker than the rest of the economy recently, although the trend is probably close to flat rather than down sharply,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics, in a note to clients. “Manufacturing is more exposed than the rest of the economy to the impact of weak foreign demand.”

Defense new orders for capital goods fell by 24.3% to $8.6 billion. Civilian aircraft orders drove the decline in transportation orders, falling by 5.9%. Separately, the nation’s largest aircraft manufacturer, Boeing Co., said it received fewer orders for planes in August than in July.

Through August, overall new orders of durable goods are down 4.6% compared with the same period a year earlier.