The outlook for the US manufacturing sector became better with an increase in new orders for business equipment, according to the Commerce Department.
The increase in new orders for US-manufactured capital goods in July exceeded expectations for the month, while also indicating a good start for the third quarter and second half of 2017. IST Precision agrees that it also bodes well for mechatronic services and automation products, as businesses plan to invest more despite uncertainty over tax incentives.
While the increase in new orders seems good for the economy, the need for corporate tax reform is necessary to achieve productivity growth, according to the chief economist at RDQ Economics. In the meantime, the Commerce Department’s report showed that economic growth has begun to rebound after a slow start in 2017.
The decision of several companies to raise their business investments amid the looming tax changes will be crucial in maintaining this growth. It remains to be seen how the changes will weigh on their long-term spending plans.
In July, the number of core capital goods shipped increased by 3.3% year over year and 1% from 0.6% in June. New orders for motor vehicles and parts fell 1.2%, which reflected weak auto sales. On the other hand, fabricated metals increased 1%. Orders for computers and electronic products grew 1.6%, while those for electrical equipment and appliances climbed 2.6%.
The report also recorded a 70.7% decline in bookings for civilian aircraft and parts, while orders for defense capital goods increased by 14.7%. Inventories for durable goods increased by 0.3%, but a 19% drop in transportation equipment orders affected overall durable goods orders.
Investment in business equipment is important for the economy. Despite mixed growth statistics, it accounted for 0.44 percentage point from a 2.6% annualized growth pace of the US economy between April and June 2017. This growth represented the highest figure in almost two years.