A key proxy for business investment unexpectedly turned negative in October, suggesting that businesses turned more cautious in the month.
Orders for so-called core capital goods fell 0.1 percent compared with the previous month. Year-to-date orders are up 1.8 percent compared with the first ten months of last year.
Core capital goods orders exclude orders for defense goods and aircraft.
Overall durable goods orders fell 5.4 percent because of fewer orders for Boeing passenger planes. Aircraft orders tend to be extremely volatile due to large orders from airlines. Nondefense aircraft orders fell 49.6 percent in October, jumped 90.6 percent in September, and fell 17.5 percent in August. Compared with the first ten months of last year, orders are up 35.8 percent.
Defense orders have been particularly volatile and elevated since the Russian invasion of Ukraine. Now the Hammas attack on Israel and Israel’s response is likely also a contributor to orders. Defense capital goods orders rose 24.5 percent in October compared with September and are up 14.8 percent year-to-date.
Economists had forecast a milder 3.4 percent decline in overall orders. Core capital goods orders were expected to rose 0.1 percent.
The Federal Reserve raised its interest rate target from near zero to over five percent in an attempt to tame inflation. The Fed believes higher borrowing costs will discourage companies from borrowing as much to fund expanded activity. As well, higher yields on Treasuries and government-backed mortgages are thought to pull money away from riskier private investments. Core orders have declined in four of the past five months.
Orders for motor vehicles and parts fell 3.8 percent in October, likely reflecting consumer hesitancy to buy new vehicles due to higher borrowing costs. Compared with the first ten months of last year, however, orders are up 5.7 percent.