Capital Goods Orders Fall, but Consumer Data Points Are Encouraging – New York Times

WASHINGTON — New orders for capital goods fell in November and the previous month's increase was revised sharply lower as the strong dollar and spending cuts in the energy sector showed few signs of abating.

But the outlook for the economy remains encouraging, with other data on Wednesday showing consumer sentiment at a five-month high in December and personal income rising for an eighth straight month in November. That should support consumer spending and generate enough economic growth for the Federal Reserve to raise interest rates steadily next year.

"The economy is not too cold and not too hot; it is just right. The Fed can stay the course," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Commerce Department said orders for nondefense capital goods orders excluding aircraft — a closely watched proxy for business spending plans — dropped 0.4 percent in November. The figure for October for these so-called core capital goods was revised down to a 0.6 percent increase, from a 1.3 percent rise.

Manufacturing, which accounts for 12 percent of the economy, is also being hurt by business efforts to reduce inventory bloat and sluggish global demand. The dollar has gained almost 20 percent against the currencies of the United States' main trading partners over the last 18 months.

A survey this month showed manufacturing contracted in November for the first time in three years.

"Unless we see a big rebound in December or upward revisions, it appears that investment in equipment contracted in the fourth quarter," said Paul Ashworth, chief United States economist at Capital Economics in Toronto.

A separate report showed the University of Michigan's consumer sentiment index increased to 92.6 this month, the highest reading since July. Low inflation, characterized by deep discounts at shopping malls, accounted for the rise in sentiment this month.

Prospects for consumer spending next year also got a lift from another report from the Commerce Department, showing income increased 0.3 percent last month, after gaining 0.4 percent in October. Wages and salaries advanced 0.5 percent, adding to a 0.6 percent gain in October.

A tightening labor market, marked by an unemployment rate that is in a range some Fed officials consider consistent with full employment, is starting to lift wages.

The personal consumption expenditures price index rose 0.4 percent in the 12 months through November, the largest increase since December, after increasing 0.2 percent in October. Excluding food and energy, the so-called core index rose 1.3 percent in the 12 months through November, for the 11th straight month. It is the Fed's preferred inflation measure.

The Commerce Department's Bureau of Economic Analysis inadvertently released part of the consumption portion of its report late Tuesday.

Other indicators suggested some loss of momentum in the housing market. Sales of new single-family homes in November rose less than expected and the previous month's increase was revised down.

The Commerce Department said on Wednesday that sales increased 4.3 percent to a seasonally adjusted annual rate of 490,000 units. October's sales pace was revised down to 470,000 units from the previously reported 495,000 units.

Economists polled by Reuters had forecast new home sales, which account for about 9.3 percent of the housing market, rising to a rate of 505,000 units last month. Sales were up 9.1 percent compared with November of last year.