The worst of business uncertainty caused by tariffs is most likely behind us.
American businesses in September posted a third straight month of strong spending growth after a period of extreme volatility.
Orders for core capital spending, which excludes aircraft and defense, rose by 0.9% on the month, capping off a great quarter at a 7.6% growth rate on a three-month annualized pace, according to government data released on Wednesday.
Whether it is AI-fueled spending or another round of front-running tariffs, the strong rebound in business investment despite still-high uncertainty was a sign of strength heading into the new year, when more tailwinds from monetary and fiscal policies will be in place.
The weakness in the labor market has not translated into falling business spending, at least for now, because businesses are pushing for more AI and automation investments.
Shipments of core capital goods, a proxy for business investment within GDP, also rose by a sharp 5% on a three-month annualized basis in September.
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All the data is pointing toward a strong print for GDP in the third quarter, which has not been released in time because of the government shutdown.
The data released on Wednesday stands in stark contrast to the recent retail sales data, which suggested a weaker month for consumer spending.
The takeaway
In a sense, the K-shaped economy continues to show up in the data as business spending, driven by the top hyperscalers and AI-related players, are not missing any chance to participate in the AI race. But consumers, who have been affected by slowing income growth and AI layoffs, have shown signs of fatigue.
