WASHINGTON — 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 released 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 drift of data suggests that the first time the Fed will raise rates will be in the spring.
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 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.
Manufacturing accounts for 12 percent of the economy.
In a separate report, the Conference Board said its consumer sentiment index fell to 97.6 this month from a reading of 102.6 in September. Consumers were less optimistic about the labor market, with the share of those anticipating more jobs in the months ahead slipping.
There was a drop in the proportion of consumers expecting their incomes to increase and more expected a drop in their income. The downbeat assessment of the labor market follows a step down in job growth in August and September.
Softer Growth
Data ranging from trade to retail sales and industrial production have all suggested a significant loss of momentum in the third quarter.
Housing continues to outperform the economy. A third report Tuesday showed the S&P/Case Shiller composite index of home prices in 20 metropolitan areas increased 5.1 percent in August from a year ago after rising 4.9 percent in July.
U.S. stocks were trading lower, while the dollar was little changed. Prices for U.S. government debt rose.
According to a Reuters survey of economists, gross domestic product likely expanded at a 1.6 percent annual rate in the third quarter, slowing from a brisk 3.9 percent pace in the second quarter. The government will publish its advance third-quarter GDP estimate Thursday.
The dollar has gained 15.4 percent against the currencies of the United States’ main trading partners since June 2014, undermining the profits of multinational companies such as Procter & Gamble (PG) and 3M (MMM).
At the same time, a plunge in oil prices has squeezed revenues for oil field companies such as Schlumberger (SLM) and diversified manufacturer Caterpillar (CAT).
Schlumberger, the world’s No.1 oilfield services provider, said this month it didn’t expect a recovery in demand before 2017 and anticipated that exploration and production spending would fall for a second consecutive year in 2016.
“It is hard for firms to commit to expanding plants and upgrading equipment in a global economy that continues to deliver so many speed bumps,” said Diane Swonk, chief economist at Mesirow in Chicago.
Shipments of core capital goods, which are used to calculate equipment spending in the government’s GDP measurement, rose 0.5 percent last month after a downwardly revised 0.8 percent drop in August. Core capital goods shipments were previously reported to have dropped 0.4 percent in August.
A 2.9 percent decline in transportation equipment spending helped to weigh down overall orders for durable goods — items ranging from toasters to aircraft that are meant to last three years or more — which fell 1.2 percent last month.
Durable goods inventories fell 0.3 percent, the largest drop since May 2013, while unfilled orders declined 0.6 percent.
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It’s important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
1. Gross Domestic Product
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
2. Consumer Price Index
The unemployment rate measures the percentage of workers within the total labor force who don’t have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It’s therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
3. Unemployment Rate
The trade deficit measures the difference between the value of a nation’s imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation’s dependence on foreign countries.
4. Trade Deficit
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there’s a reason we’ve combined them on one slide: In addition to being useful statistics separately for gauging Americans’ earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
5 & 6. Personal Income and Personal Spending
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy’s prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
7. Consumer Confidence
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
8. Housing Prices
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board’s Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
9. Leading Economic Index
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