US Core Capital Goods Orders Rebound: A Sign of Economic Resilience

The U.S. economy has shown remarkable resilience in the face of global headwinds, and the latest data on core capital goods orders serves as a testament to this strength. In November 2024, new orders for key U.S.-manufactured capital goods surged, signaling a strong end to the year and boosting business confidence. This article delves into the factors driving this rebound and its implications for the broader economy.

The rebound in core capital goods orders, up 0.7% in November, follows a dip of 0.1% in October. This uptick aligns with strong consumer spending data and suggests a resilient economy. The increase in shipments, up 0.4% year-on-year, further supports this trend. However, economists had only forecast a 0.1% gain, suggesting a stronger-than-expected recovery. This could encourage businesses to invest more in equipment and machinery, boosting overall economic growth in the fourth quarter.



The election outcome appears to have played a role in boosting business confidence, as the uncertainty surrounding the election may have previously held back investment decisions. The resolution of the election has likely encouraged businesses to move forward with their plans, as evident in the 0.7% increase in non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans.

The Federal Reserve's interest rate cuts, starting in September 2024, have also contributed to the rebound in core capital goods orders. The rate cuts, totaling 50 basis points by the end of the year, lowered borrowing costs for businesses, encouraging investment in capital goods. This, coupled with the economy's resilience and strong consumer spending, has contributed to the 0.7% increase in core capital goods orders in November 2024.



The rebound in U.S. core capital goods orders has significant implications for overall GDP growth projections for the end of 2024. The uptick in business sentiment and investment could boost economic growth, although the impact depends on factors like the pace of capital goods shipments and the broader economic outlook.

The Federal Reserve's monetary policy decisions for the remainder of 2024 may also be influenced by the rebound in core capital goods orders. The Fed, which recently cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range, may now reassess its projections for fewer interest rate cuts in 2025. The upbeat data underscores the economy's resilience, prompting the Fed to project only two rate reductions in 2025, down from the previously forecasted four. This shallower rate cut path reflects uncertainty over policies from the incoming Trump administration.

In conclusion, the rebound in U.S. core capital goods orders signals a strengthening business sentiment and investment, which could boost overall GDP growth projections for the end of 2024. The election outcome and the Fed's interest rate cuts have played a significant role in this recovery, while the broader economic outlook will determine the extent of the impact on GDP growth. As the economy continues to show resilience, investors should remain optimistic about the prospects for the U.S. economy in the coming months.