The U.S. business investments slowed down more sharply than previously estimated in the second quarter. The downturn in business spending has been blamed on the 18 months trade war with China. The soft investment and slow profit gains, reported by the Commerce Department, this could raise doubts on consumers’ ability to drive the economy. Business investment will probably remain a drag on economic growth in the fourth quarter as new orders for key U.S.-made capital goods barely rose in November while shipments of core capital goods fell.
Business investment declined at a 1.0% annualized rate last quarter which was falling sharply since the fourth quarter of 2015.business spending plans, edged up 0.1% last month as a surge in demand for electrical equipment, appliances, and components which was partially offset by a drop in machinery orders. These core capital goods orders rose by 1.1% in October.
However, Shipments of core capital goods dropped 0.3% last month. In the government’s gross domestic product measurement the core capital goods shipments are used to calculate equipment spending. These shipments posed a downside risk to fourth-quarter GDP growth estimates, which range from as low as a 1.5% annualized rate to as high as a 2.3% pace, whereas in the third quarter the economy grew by 2.1%.
While manufacturing is struggling, New home sales rebounded 1.3% to a seasonally adjusted annual rate of 719,000 units last month, lifted by gains in activity in the Northeast and West regions. The housing market is steadily rising which is driven by the Federal Reserve’s three interest rate cuts this year. However, the sales pace revised down to 710,000 units which were sold in October from the previously reported 733,000 units. the housing market volatile on a month-to-month basis because new home sales are drawn from a small sample of houses selected from building permits. Sales jumped 16.9% from a year ago. While it is expected that the housing activity will remain supported with lower interest rates by federal reserves however it will not show a further substantial pick-up in activity into 2020.
With weak spending on equipment and nonresidential structures such as gas and oil, well-drilling results in a substantial decrease in business investment straight for two quarters, contributing to the decline that has pushed manufacturing into recession.