Core capital spending in September rose 1.3% m/o/m, above the forecast of up .3% and August was revised up by 2 tenths. The y/o/y gain is now 7% and maybe finally we are seeing the long awaited improvement in capital expenditures that has so eluded this recovery. There was no change in vehicles and parts orders m/o/m and are down .9% y/o/y as the industry continues to digest a peak in sales and high inventories. Orders for computers/electronics grew by 1.6% m/o/m and are up 7.1% y/o/y. This was driven by communications equipment as orders for computer products fell 5.5% m/o/m. Electrical equipment orders though fell .1% m/o/m and are down 2.8% y/o/y. Relative to last year, orders for metals, both primary and fabricated, are up double digits coincident with higher commodity prices. Spending on machinery fell for a 2nd month but are still up almost 6% y/o/y. Also of note, shipments of core goods rose by .7% m/o/m vs the estimate of up .1% so this could lead to an uptick in Q3 GDP forecasts.
Bottom line, it’s great to see the rise in capital spending but as seen in this chart, we are not even at the peak in the last expansion in 2007 and remain below the high in 2014. A major driver of capital spending in 2018 could very well be the immediate expensing of capital expenditures vs the current depreciation schedule that should be part of the new tax bill.
CORE CAPITAL SPENDING ORDERS
In response to the upside surprise in durable goods orders, the 10 yr yield has risen another 2-3 bps to 2.47% and is thus up on the year again at a 7 month high. The 5 yr is now up to 2.08%.