Capital spending remained weak in May. Core spending (defined as orders for non defense capital goods ex aircraft) fell .2% m/o/m instead of rising by .4% as expected. April was revised up by one tenth. Also, shipments which is part of the GDP calculation also fell by .2% m/o/m vs the estimate of up .4% and that should lead to a downward revision to Q2 GDP estimates. Orders for vehicles/parts did rise 1.2% m/o/m and 7.6% y/o/y but I believe this will just lead to more unnecessary inventory building in a segment of the economy where sales are clearly slowing. Orders for computers/electronics fell .2% and are now down y/o/y by .5%. On the commodity rebound over the past year, machinery orders were higher and mining was as well but how sustainable is now the question with the recent drop in commodity prices. Electrical equipment was up by 1% but after falling by 2% last month.
Bottom line, capital spending remains punk, the same story throughout this recovery. Yes, there were high hopes post election but when it comes to investing in one’s business, there has been little change. I’m sure one of the reasons is the ‘wait and see’ on tax reform, both on the rate and expensing side. Here is the visual of core capital spending in dollars: