October Capital Good Shipments

December 1, 2006 – In the data released this week, U.S. real non-defense capital good shipments excluding aircraft fell by 0.6% in October, extending September’s 2.2% decline (Chart 1).

Chart 1. Real shipments of non-defense capital goods excluding aircraft. Percent change. Monthly and three-month moving average. January 2000 through October 2006.

For the three months through October, these real capital good shipments fell by an average of 0.4% per month.

Compared to their average level in Q3, real non-defense capital good shipments excluding aircraft are now falling at an 8.4% annual rate for Q4 to date (as of the quarter’s first month, Chart 2). For all of Q3, these shipments rose at a 6.6% annual rate.

Chart 2. Real shipments of non-defense capital goods excluding aircraft and real business fixed investment in equipment and software. Annualized percent change. First quarter 2000 through third quarter 2006 and fourth quarter 2006 to date.

Thus, these data suggest a weak start for real business fixed investment in equipment and software in Q4. In Q3, businesses’ real equipment & software investment rose at a 7.2% annual rate.

Real non-defense capital good shipments excluding aircraft rose by 3.7% in October, compared to the same month last year (Chart 3). Although it is still positive, this twelve-month trend reached a peak of 8.7% in July, and it has eroded rapidly since then.

Chart 3. Real shipments of non-defense capital goods excluding aircraft. Year-ago percent change. January 1969 through October 2006.

The abrupt nature of this slowing is a disturbing development, as far as the economy’s general health is concerned. However, the continuing strong trend in corporate profits through Q3 should help to limit the downside in business equipment demand.

Suzanne Rizzo

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