Business spending on equipment was mixed in October, likely because of uncertainty over the direction of fiscal and monetary policies, the Commerce Department reported on Wednesday. But that is likely to increase in the months ahead as those uncertainties ease.
And with more domestic growth as the base policy case over the next four years, private investment on capital goods should be on a strong footing. It is important to note that the mixed October report on durable goods was a first estimate from the Commerce Department and is subject to revision.
In a separate report from the Bureau of Economic Analysis on Wednesday, the second estimate of gross domestic product growth in the third quarter remained at 2.8%.
There were not a lot of notable changes in the second estimate except for a downward revision of the personal consumption component, from 3.7% to 3.5%, which was still robust and was the key driver of growth in the quarter.
What was new in the second estimate was the first look at gross domestic income, which posted another strong quarter, rising by 2.2% on an annualized pace.
That brought the average of GDP and GDI to 2.5%, unchanged from the second quarter. The increase in income reaffirmed the underlying strength of the economy in the past couple of quarters that came from a labor market where income and wage gains stayed robust.
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The recent concerns about labor market weaknesses should be put into a better context considering the wage and income growth.
Also, in the report from the BEA, corporate profits after tax, with inventory and capital consumption adjustments, remained near their all-time high, falling by only $0.4 billion in the third quarter.
That high level helped to explain partly why equities have been exceptionally strong in the third quarter. On a year-ago basis, profits after taxes increased, and with adjustments they rose by 6.4%.
Durable goods orders
Core capital goods orders—which are a proxy for future spending by private businesses except for defense and aircraft—dropped by 0.2% while shipments of the same component rose by 0.2%. Overall orders of durable goods that last for three years or more increased by 0.2% in October.
Orders of primary metals, computers and electronics were the key drags in October, falling by 0.7% and 0.1%, respectively. Electrical equipment posted the strongest gain within the core capital group, rising by 1.3%.
