Capital Goods Increase for Second month

According to the Census Bureau, real capital goods new orders in August 2014 were $87,149 million. Orders in August 2014 were 11.4% higher than they were in August 2013, which is not bad considering they increase almost 75% last month. The annual rate of change decelerated slightly to 8.4%, but it should accelerate faster over the next couple of months at least.

This leading indicator is positive once again for future capital spending. Total capital goods new orders tend to lead industrial production by three months and capital spending by 18 months on average based on long-term historical correlations. 

A good leading indicator for real capital goods new orders is real consumer spending. Since October 2013, the annual rate of change in real consumer spending has been virtually unchanged. Unless the rate of growth in real consumer spending accelerates it is likely that further accelerating growth in capital goods new orders will be limited.

We use real capital goods new orders to forecast activity in metalcutting job shops, metalworking, and durable goods.