Weak U.S. business spending plans point to slower economic growth

Tue Oct 27, 2015 12:20pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - A gauge of U.S. business investment plans fell for a second straight month in September, pointing to a sharp slowdown in economic growth and casting more doubts on whether the Federal Reserve will raise interest rates this year.

Other data on Tuesday showed consumer confidence slipped this month amid worries over a recent moderation in job growth and its potential impact on income. Housing, however, remains the bright spot, with home prices accelerating in August.

That should boost household wealth, supporting consumer spending and the broader economy, which has been buffeted by a strong dollar, weak global demand, spending cuts in the energy sector and efforts by businesses to reduce an inventory glut.

The continued weakness in business spending, together with the slowdown in hiring, could make it difficult for the Fed to lift its short-term interest rate from near zero in December, as most economists expect. The U.S. central bank's policy-setting committee started a two-day meeting on Tuesday.

"The drift of data suggests that the first time the Fed will raise rates will be in the spring," said Steve Blitz, chief economist at ITG Investment Research in New York.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.3 percent last month after a downwardly revised 1.6 percent decline in August, the Commerce Department said.

These so-called core capital goods were previously reported to have dropped 0.8 percent in August. The data was the latest dour news for manufacturing, which has borne the brunt of dollar strength, energy sector investment cuts and the inventory correction.   Continued...

 
Assembly workers work on the underside of 2015 Ford Mustang vehicles on the production line at the Ford Motor Flat Rock Assembly Plant in Flat Rock, Michigan, August 20, 2015.  REUTERS/Rebecca Cook