News In Brief

Companies buy less capital goods

Paddy Hirsch Aug 24, 2011

Capital goods are the things that companies buy to make stuff. Like factories, machinery, tools, equipment, and buildings. Unfortunately, companies didn’t spend much in this category in July, and that’s pushing The Marketplace Index down three points today.

Analysts use the amount that companies are spending on this stuff as a gauge of how confident business is about the state of the economy.

The Commerce Department said today companies orders for non-military capital goods fell 1.5 percent, suggesting businesses are looking at the economy right now and estimating that demand from consumers will not be increasing by much. As a result, companies aren’t planning to produce much more in the near term.

This is bad news for the Federal Reserve. It pledged to keep interest rates at zero for the next two years, hoping to reassure companies and give them the confidence to borrow and spend and produce. It looks like the tactic hasn’t worked so far.

Today’s report said people are ordering more durable goods from American companies, particularly aircraft and autos. A durable good is a product expected to last three years, at least. Orders for civilian aircraft bounced up 43.4 percent, and orders for autos and auto parts rose 11.5 percent, the highest in eight years.

But computers and electronics orders declined 3.4 percent, electrical equipment and appliances fell 1.8 percent and machinery orders dropped 1.5 percent. And observers were quick to point out that auto orders were up because the sector is recovering from damage done by the Japan nuclear and tsunami disasters. While aircraft orders are up becasue of a big order of 100 planes by American Airlines in July.

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